Correlation Between AES and Veolia Environnement

Can any of the company-specific risk be diversified away by investing in both AES and Veolia Environnement 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 AES and Veolia Environnement into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The AES and Veolia Environnement SA, you can compare the effects of market volatilities on AES and Veolia Environnement 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 AES with a short position of Veolia Environnement. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES and Veolia Environnement.

Diversification Opportunities for AES and Veolia Environnement

0.48

Correlation Coefficient

AES  Veolia Environnement

Very weak diversification

The 3 months correlation between AES and Veolia is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding The AES and Veolia Environnement SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement and AES 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 The AES are associated (or correlated) with Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of AES i.e., AES and Veolia Environnement go up and down completely randomly.

Pair Corralation between AES and Veolia Environnement

Considering the 90-day investment horizon AES is expected to generate 10.31 times less return on investment than Veolia Environnement. In addition to that, AES is 1.87 times more volatile than Veolia Environnement SA. It trades about 0.01 of its total potential returns per unit of risk. Veolia Environnement SA is currently generating about 0.21 per unit of volatility. If you would invest  1,404  in Veolia Environnement SA on December 27, 2024 and sell it today you would earn a total of  290.00  from holding Veolia Environnement SA or generate 20.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

The AES  vs.  Veolia Environnement SA

AES

Risk-Adjusted Performance

Very Weak

Over the last 90 days The AES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, AES is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Veolia Environnement

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Veolia Environnement SA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Veolia Environnement showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AES and Veolia Environnement

The main advantage of trading using opposite AES and Veolia Environnement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AES position performs unexpectedly, Veolia Environnement 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 Veolia Environnement will offset losses from the drop in Veolia Environnement's long position.

The idea behind The AES and Veolia Environnement SA 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.