Correlation Between Compagnie and Trane Technologies

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

By analyzing existing cross correlation between Compagnie de Saint Gobain and Trane Technologies plc, you can compare the effects of market volatilities on Compagnie and Trane Technologies 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 Compagnie with a short position of Trane Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie and Trane Technologies.

Diversification Opportunities for Compagnie and Trane Technologies

0.6

Correlation Coefficient

Compagnie  Trane Technologies

Poor diversification

The 3 months correlation between Compagnie and Trane is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Saint Gobain and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc and Compagnie 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 Compagnie de Saint Gobain are associated (or correlated) with Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Compagnie i.e., Compagnie and Trane Technologies go up and down completely randomly.

Pair Corralation between Compagnie and Trane Technologies

Assuming the 90 days horizon Compagnie de Saint Gobain is expected to generate 1.14 times more return on investment than Trane Technologies. However, Compagnie is 1.14 times more volatile than Trane Technologies plc. It trades about 0.05 of its potential returns per unit of risk. Trane Technologies plc is currently generating about 0.0 per unit of risk. If you would invest  1,768  in Compagnie de Saint Gobain on October 24, 2024 and sell it today you would earn a total of  64.00  from holding Compagnie de Saint Gobain or generate 3.62% return on investment over 90 days.

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

Compagnie de Saint Gobain  vs.  Trane Technologies plc

Compagnie de Saint

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Saint Gobain are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Compagnie is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Trane Technologies plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Compagnie and Trane Technologies

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

The idea behind Compagnie de Saint Gobain and Trane Technologies 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.