Correlation Between Dassault Systemes and Alstom SA

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

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

Diversification Opportunities for Dassault Systemes and Alstom SA

0.23

Correlation Coefficient

Dassault Systemes  Alstom SA

Modest diversification

The 3 months correlation between Dassault and Alstom is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Dassault Systemes SE and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA and Dassault Systemes 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 Dassault Systemes SE 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 Dassault Systemes i.e., Dassault Systemes and Alstom SA go up and down completely randomly.

Pair Corralation between Dassault Systemes and Alstom SA

Assuming the 90 days trading horizon Dassault Systemes SE is expected to generate 0.63 times more return on investment than Alstom SA. However, Dassault Systemes SE is 1.58 times less risky than Alstom SA. It trades about 0.25 of its potential returns per unit of risk. Alstom SA is currently generating about -0.17 per unit of risk. If you would invest  3,345  in Dassault Systemes SE on October 25, 2024 and sell it today you would earn a total of  255.00  from holding Dassault Systemes SE or generate 7.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Dassault Systemes SE  vs.  Alstom SA

Dassault Systemes

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dassault Systemes SE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dassault Systemes sustained solid returns over the last few months and may actually be approaching a breakup point.

Alstom SA

Risk-Adjusted Performance

0 of 100

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 Dassault Systemes and Alstom SA

The main advantage of trading using opposite Dassault Systemes and Alstom SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dassault Systemes 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 Dassault Systemes SE 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.