Correlation Between Bouygues and Construction Partners

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

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

Diversification Opportunities for Bouygues and Construction Partners

0.19

Correlation Coefficient

Bouygues  Construction Partners

Average diversification

The 3 months correlation between Bouygues and Construction is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Bouygues SA and Construction Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Construction Partners 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 Construction Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Construction Partners has no effect on the direction of Bouygues i.e., Bouygues and Construction Partners go up and down completely randomly.

Pair Corralation between Bouygues and Construction Partners

Assuming the 90 days horizon Bouygues SA is expected to generate 0.53 times more return on investment than Construction Partners. However, Bouygues SA is 1.9 times less risky than Construction Partners. It trades about 0.22 of its potential returns per unit of risk. Construction Partners is currently generating about -0.22 per unit of risk. If you would invest  3,185  in Bouygues SA on November 29, 2024 and sell it today you would earn a total of  195.00  from holding Bouygues SA or generate 6.12% return on investment over 90 days.

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

Bouygues SA  vs.  Construction Partners

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.

Construction Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Construction Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Bouygues and Construction Partners

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

The idea behind Bouygues SA and Construction Partners 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.