Correlation Between Engie SA and TransAlta Corp

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

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

Diversification Opportunities for Engie SA and TransAlta Corp

-0.75

Correlation Coefficient

Engie SA  TransAlta Corp

Pay attention - limited upside

The 3 months correlation between Engie and TransAlta is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Engie SA ADR and TransAlta Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta Corp and Engie 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 Engie SA ADR are associated (or correlated) with TransAlta Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta Corp has no effect on the direction of Engie SA i.e., Engie SA and TransAlta Corp go up and down completely randomly.

Pair Corralation between Engie SA and TransAlta Corp

Assuming the 90 days horizon Engie SA is expected to generate 2.11 times less return on investment than TransAlta Corp. But when comparing it to its historical volatility, Engie SA ADR is 1.52 times less risky than TransAlta Corp. It trades about 0.06 of its potential returns per unit of risk. TransAlta Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  786.00  in TransAlta Corp on October 5, 2024 and sell it today you would earn a total of  638.00  from holding TransAlta Corp or generate 81.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.78%
Values	Daily Returns

Engie SA ADR  vs.  TransAlta Corp

Engie SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

TransAlta Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TransAlta Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, TransAlta Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engie SA and TransAlta Corp

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

The idea behind Engie SA ADR and TransAlta Corp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.