Correlation Between Euronext and Reworld Media

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

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

Diversification Opportunities for Euronext and Reworld Media

-0.6

Correlation Coefficient

Euronext  Reworld Media

Excellent diversification

The 3 months correlation between Euronext and Reworld is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Euronext NV and Reworld Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reworld Media and Euronext 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 Euronext NV are associated (or correlated) with Reworld Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reworld Media has no effect on the direction of Euronext i.e., Euronext and Reworld Media go up and down completely randomly.

Pair Corralation between Euronext and Reworld Media

Assuming the 90 days trading horizon Euronext NV is expected to generate 0.29 times more return on investment than Reworld Media. However, Euronext NV is 3.44 times less risky than Reworld Media. It trades about 0.25 of its potential returns per unit of risk. Reworld Media is currently generating about -0.05 per unit of risk. If you would invest  10,500  in Euronext NV on December 1, 2024 and sell it today you would earn a total of  1,620  from holding Euronext NV or generate 15.43% return on investment over 90 days.

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

Euronext NV  vs.  Reworld Media

Euronext NV

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Euronext NV are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Euronext sustained solid returns over the last few months and may actually be approaching a breakup point.

Reworld Media

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reworld Media has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Euronext and Reworld Media

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

The idea behind Euronext NV and Reworld Media 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.