Correlation Between Bouygues and BNP Paribas

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

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

Diversification Opportunities for Bouygues and BNP Paribas

0.76

Correlation Coefficient

Bouygues  BNP Paribas

Poor diversification

The 3 months correlation between Bouygues and BNP is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bouygues SA and BNP Paribas SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNP Paribas SA and Bouygues 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 Bouygues SA are associated (or correlated) with BNP Paribas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNP Paribas SA has no effect on the direction of Bouygues i.e., Bouygues and BNP Paribas go up and down completely randomly.

Pair Corralation between Bouygues and BNP Paribas

Assuming the 90 days horizon Bouygues SA is expected to under-perform the BNP Paribas. But the stock apears to be less risky and, when comparing its historical volatility, Bouygues SA is 1.09 times less risky than BNP Paribas. The stock trades about -0.03 of its potential returns per unit of risk. The BNP Paribas SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,256  in BNP Paribas SA on October 2, 2024 and sell it today you would earn a total of  617.00  from holding BNP Paribas SA or generate 11.74% return on investment over 90 days.

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

Bouygues SA  vs.  BNP Paribas SA

Bouygues SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

BNP Paribas SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Bouygues and BNP Paribas

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

The idea behind Bouygues SA and BNP Paribas 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.