Correlation Between Energy and Air France

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

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

Diversification Opportunities for Energy and Air France

-0.09

Correlation Coefficient

Energy  Air France

Good diversification

The 3 months correlation between Energy and Air is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Water and Air France KLM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air France KLM and Energy 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 Energy and Water are associated (or correlated) with Air France. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air France KLM has no effect on the direction of Energy i.e., Energy and Air France go up and down completely randomly.

Pair Corralation between Energy and Air France

Given the investment horizon of 90 days Energy and Water is expected to under-perform the Air France. In addition to that, Energy is 4.1 times more volatile than Air France KLM. It trades about -0.25 of its total potential returns per unit of risk. Air France KLM is currently generating about -0.04 per unit of volatility. If you would invest  91.00  in Air France KLM on August 31, 2024 and sell it today you would lose (11.00) from holding Air France KLM or give up 12.09% of portfolio value over 90 days.

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

Energy and Water  vs.  Air France KLM

Energy and Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy and Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Air France KLM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air France KLM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Energy and Air France

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

The idea behind Energy and Water and Air France KLM 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.