Correlation Between Euronext and Orange SA

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

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

Diversification Opportunities for Euronext and Orange SA

0.85

Correlation Coefficient

Euronext  Orange SA

Very poor diversification

The 3 months correlation between Euronext and Orange is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Euronext NV and Orange SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orange SA 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 Orange SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orange SA has no effect on the direction of Euronext i.e., Euronext and Orange SA go up and down completely randomly.

Pair Corralation between Euronext and Orange SA

Assuming the 90 days trading horizon Euronext is expected to generate 1.03 times less return on investment than Orange SA. In addition to that, Euronext is 1.29 times more volatile than Orange SA. It trades about 0.33 of its total potential returns per unit of risk. Orange SA is currently generating about 0.43 per unit of volatility. If you would invest  963.00  in Orange SA on December 31, 2024 and sell it today you would earn a total of  222.00  from holding Orange SA or generate 23.05% return on investment over 90 days.

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

Euronext NV  vs.  Orange SA

Euronext NV

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Euronext NV are ranked lower than 25 (%) 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.

Orange SA

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Orange SA are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Orange SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Euronext and Orange SA

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

The idea behind Euronext NV and Orange 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.