Correlation Between Alstom SA and Winfarm

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

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

Diversification Opportunities for Alstom SA and Winfarm

0.02

Correlation Coefficient

Alstom SA  Winfarm

Significant diversification

The 3 months correlation between Alstom and Winfarm is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Alstom SA and Winfarm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Winfarm and Alstom SA 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 Alstom SA are associated (or correlated) with Winfarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Winfarm has no effect on the direction of Alstom SA i.e., Alstom SA and Winfarm go up and down completely randomly.

Pair Corralation between Alstom SA and Winfarm

Assuming the 90 days trading horizon Alstom SA is expected to under-perform the Winfarm. But the stock apears to be less risky and, when comparing its historical volatility, Alstom SA is 1.19 times less risky than Winfarm. The stock trades about -0.03 of its potential returns per unit of risk. The Winfarm is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  370.00  in Winfarm on December 4, 2024 and sell it today you would lose (10.00) from holding Winfarm or give up 2.7% of portfolio value over 90 days.

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

Alstom SA  vs.  Winfarm

Alstom SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alstom SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Alstom SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Winfarm

Risk-Adjusted Performance

Weak

Over the last 90 days Winfarm has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Winfarm is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alstom SA and Winfarm

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

The idea behind Alstom SA and Winfarm 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 Global Correlations module to find global opportunities by holding instruments from different markets.