Correlation Between Caledonia Investments and Shell Plc

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

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

Diversification Opportunities for Caledonia Investments and Shell Plc

-0.52

Correlation Coefficient

Caledonia Investments  Shell Plc

Excellent diversification

The 3 months correlation between Caledonia and Shell is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Investments and Shell plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell plc and Caledonia Investments 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 Caledonia Investments are associated (or correlated) with Shell Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell plc has no effect on the direction of Caledonia Investments i.e., Caledonia Investments and Shell Plc go up and down completely randomly.

Pair Corralation between Caledonia Investments and Shell Plc

Assuming the 90 days trading horizon Caledonia Investments is expected to generate 2.94 times less return on investment than Shell Plc. But when comparing it to its historical volatility, Caledonia Investments is 1.01 times less risky than Shell Plc. It trades about 0.01 of its potential returns per unit of risk. Shell plc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  236,111  in Shell plc on October 11, 2024 and sell it today you would earn a total of  21,839  from holding Shell plc or generate 9.25% return on investment over 90 days.

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

Caledonia Investments  vs.  Shell plc

Caledonia Investments

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Investments are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caledonia Investments is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Shell plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Caledonia Investments and Shell Plc

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

The idea behind Caledonia Investments and Shell plc 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.