Correlation Between TotalEnergies and CAC Next

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

By analyzing existing cross correlation between TotalEnergies EP Gabon and CAC Next 20, you can compare the effects of market volatilities on TotalEnergies and CAC Next 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 TotalEnergies with a short position of CAC Next. Check out your portfolio center. Please also check ongoing floating volatility patterns of TotalEnergies and CAC Next.

Diversification Opportunities for TotalEnergies and CAC Next

-0.36

Correlation Coefficient

TotalEnergies  CAC Next

Very good diversification

The 3 months correlation between TotalEnergies and CAC is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding TotalEnergies EP Gabon and CAC Next 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAC Next 20 and TotalEnergies 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 TotalEnergies EP Gabon are associated (or correlated) with CAC Next. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAC Next 20 has no effect on the direction of TotalEnergies i.e., TotalEnergies and CAC Next go up and down completely randomly.

Pair Corralation between TotalEnergies and CAC Next

Assuming the 90 days horizon TotalEnergies EP Gabon is expected to generate 5.32 times more return on investment than CAC Next. However, TotalEnergies is 5.32 times more volatile than CAC Next 20. It trades about 0.2 of its potential returns per unit of risk. CAC Next 20 is currently generating about -0.02 per unit of risk. If you would invest  15,700  in TotalEnergies EP Gabon on September 21, 2024 and sell it today you would earn a total of  2,900  from holding TotalEnergies EP Gabon or generate 18.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

TotalEnergies EP Gabon  vs.  CAC Next 20

Pair Trading with TotalEnergies and CAC Next

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

The idea behind TotalEnergies EP Gabon and CAC Next 20 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.