Correlation Between Vinci SA and Alstom SA

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

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

Diversification Opportunities for Vinci SA and Alstom SA

-0.45

Correlation Coefficient

Vinci SA  Alstom SA

Very good diversification

The 3 months correlation between Vinci and Alstom is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Vinci SA and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA and Vinci 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 Vinci SA are associated (or correlated) with Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of Vinci SA i.e., Vinci SA and Alstom SA go up and down completely randomly.

Pair Corralation between Vinci SA and Alstom SA

Assuming the 90 days horizon Vinci SA is expected to generate 10.83 times less return on investment than Alstom SA. But when comparing it to its historical volatility, Vinci SA is 1.86 times less risky than Alstom SA. It trades about 0.01 of its potential returns per unit of risk. Alstom SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,766  in Alstom SA on November 20, 2024 and sell it today you would earn a total of  293.00  from holding Alstom SA or generate 16.59% return on investment over 90 days.

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

Vinci SA  vs.  Alstom SA

Vinci SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vinci SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Vinci SA may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Alstom SA

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vinci SA and Alstom SA

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

The idea behind Vinci SA and Alstom SA 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..