Correlation Between Bouygues and Webuild SpA

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

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

Diversification Opportunities for Bouygues and Webuild SpA

0.77

Correlation Coefficient

Bouygues  Webuild SpA

Poor diversification

The 3 months correlation between Bouygues and Webuild is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Bouygues SA and Webuild SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webuild SpA ADR and Bouygues 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 Bouygues SA are associated (or correlated) with Webuild SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webuild SpA ADR has no effect on the direction of Bouygues i.e., Bouygues and Webuild SpA go up and down completely randomly.

Pair Corralation between Bouygues and Webuild SpA

Assuming the 90 days horizon Bouygues SA is expected to generate 1.37 times more return on investment than Webuild SpA. However, Bouygues is 1.37 times more volatile than Webuild SpA ADR. It trades about 0.24 of its potential returns per unit of risk. Webuild SpA ADR is currently generating about 0.32 per unit of risk. If you would invest  2,956  in Bouygues SA on December 24, 2024 and sell it today you would earn a total of  884.00  from holding Bouygues SA or generate 29.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.25%
Values	Daily Returns

Bouygues SA  vs.  Webuild SpA ADR

Bouygues SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bouygues SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Bouygues reported solid returns over the last few months and may actually be approaching a breakup point.

Webuild SpA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Webuild SpA ADR are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking indicators, Webuild SpA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bouygues and Webuild SpA

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

The idea behind Bouygues SA and Webuild SpA ADR 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.