Correlation Between Esso SAF and TotalEnergies

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

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

Diversification Opportunities for Esso SAF and TotalEnergies

0.61

Correlation Coefficient

Esso SAF  TotalEnergies

Poor diversification

The 3 months correlation between Esso and TotalEnergies is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Esso SAF and TotalEnergies EP Gabon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies EP Gabon and Esso SAF 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 Esso SAF are associated (or correlated) with TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies EP Gabon has no effect on the direction of Esso SAF i.e., Esso SAF and TotalEnergies go up and down completely randomly.

Pair Corralation between Esso SAF and TotalEnergies

Assuming the 90 days horizon Esso SAF is expected to generate 1.06 times less return on investment than TotalEnergies. But when comparing it to its historical volatility, Esso SAF is 1.17 times less risky than TotalEnergies. It trades about 0.2 of its potential returns per unit of risk. TotalEnergies EP Gabon is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,194  in TotalEnergies EP Gabon on December 28, 2024 and sell it today you would earn a total of  5,756  from holding TotalEnergies EP Gabon or generate 43.63% return on investment over 90 days.

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

Esso SAF  vs.  TotalEnergies EP Gabon

Esso SAF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Esso SAF are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Esso SAF sustained solid returns over the last few months and may actually be approaching a breakup point.

TotalEnergies EP Gabon

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies EP Gabon are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TotalEnergies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Esso SAF and TotalEnergies

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

The idea behind Esso SAF and TotalEnergies EP Gabon 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.