Correlation Between ABC Arbitrage and Compagnie

Can any of the company-specific risk be diversified away by investing in both ABC Arbitrage and Compagnie at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ABC Arbitrage and Compagnie into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ABC arbitrage SA and Compagnie de Chemins, you can compare the effects of market volatilities on ABC Arbitrage and Compagnie and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ABC Arbitrage with a short position of Compagnie. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Arbitrage and Compagnie.

Diversification Opportunities for ABC Arbitrage and Compagnie

0.8

Correlation Coefficient

ABC Arbitrage  Compagnie

Very poor diversification

The 3 months correlation between ABC and Compagnie is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ABC arbitrage SA and Compagnie de Chemins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie de Chemins and ABC Arbitrage is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ABC arbitrage SA are associated (or correlated) with Compagnie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie de Chemins has no effect on the direction of ABC Arbitrage i.e., ABC Arbitrage and Compagnie go up and down completely randomly.

Pair Corralation between ABC Arbitrage and Compagnie

Assuming the 90 days trading horizon ABC arbitrage SA is expected to under-perform the Compagnie. But the stock apears to be less risky and, when comparing its historical volatility, ABC arbitrage SA is 1.73 times less risky than Compagnie. The stock trades about -0.02 of its potential returns per unit of risk. The Compagnie de Chemins is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  65,500  in Compagnie de Chemins on September 23, 2024 and sell it today you would earn a total of  24,500  from holding Compagnie de Chemins or generate 37.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.08%
Values	Daily Returns

ABC arbitrage SA  vs.  Compagnie de Chemins

ABC arbitrage SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABC arbitrage SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABC Arbitrage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Compagnie de Chemins

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Chemins are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Compagnie reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC Arbitrage and Compagnie

The main advantage of trading using opposite ABC Arbitrage and Compagnie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC Arbitrage position performs unexpectedly, Compagnie can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Compagnie will offset losses from the drop in Compagnie's long position.

The idea behind ABC arbitrage SA and Compagnie de Chemins pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.