Correlation Between Alstom SA and MTR Corp

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

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

Diversification Opportunities for Alstom SA and MTR Corp

0.21

Correlation Coefficient

Alstom SA  MTR Corp

Modest diversification

The 3 months correlation between Alstom and MTR is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Alstom SA and MTR Corp Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Corp 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 MTR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Corp has no effect on the direction of Alstom SA i.e., Alstom SA and MTR Corp go up and down completely randomly.

Pair Corralation between Alstom SA and MTR Corp

Assuming the 90 days horizon Alstom SA is expected to generate 0.88 times more return on investment than MTR Corp. However, Alstom SA is 1.14 times less risky than MTR Corp. It trades about 0.08 of its potential returns per unit of risk. MTR Corp Ltd is currently generating about 0.01 per unit of risk. If you would invest  1,993  in Alstom SA on September 3, 2024 and sell it today you would earn a total of  227.00  from holding Alstom SA or generate 11.39% return on investment over 90 days.

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

Alstom SA  vs.  MTR Corp Ltd

Alstom SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alstom SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Alstom SA reported solid returns over the last few months and may actually be approaching a breakup point.

MTR Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Alstom SA and MTR Corp

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

The idea behind Alstom SA and MTR Corp Ltd 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.