Correlation Between Gamma Communications and Veolia Environnement

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

By analyzing existing cross correlation between Gamma Communications PLC and Veolia Environnement VE, you can compare the effects of market volatilities on Gamma Communications and Veolia Environnement 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 Gamma Communications with a short position of Veolia Environnement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gamma Communications and Veolia Environnement.

Diversification Opportunities for Gamma Communications and Veolia Environnement

0.56

Correlation Coefficient

Gamma Communications  Veolia Environnement

Very weak diversification

The 3 months correlation between Gamma and Veolia is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Gamma Communications PLC and Veolia Environnement VE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement and Gamma Communications 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 Gamma Communications PLC are associated (or correlated) with Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of Gamma Communications i.e., Gamma Communications and Veolia Environnement go up and down completely randomly.

Pair Corralation between Gamma Communications and Veolia Environnement

Assuming the 90 days trading horizon Gamma Communications PLC is expected to generate 1.34 times more return on investment than Veolia Environnement. However, Gamma Communications is 1.34 times more volatile than Veolia Environnement VE. It trades about 0.06 of its potential returns per unit of risk. Veolia Environnement VE is currently generating about 0.02 per unit of risk. If you would invest  117,582  in Gamma Communications PLC on September 14, 2024 and sell it today you would earn a total of  44,218  from holding Gamma Communications PLC or generate 37.61% return on investment over 90 days.

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

Gamma Communications PLC  vs.  Veolia Environnement VE

Gamma Communications PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gamma Communications PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gamma Communications is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Veolia Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veolia Environnement VE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Veolia Environnement is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Gamma Communications and Veolia Environnement

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

The idea behind Gamma Communications PLC and Veolia Environnement VE 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.