Correlation Between Linedata Services and Mersen SA

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

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

Diversification Opportunities for Linedata Services and Mersen SA

-0.4

Correlation Coefficient

Linedata Services  Mersen SA

Very good diversification

The 3 months correlation between Linedata and Mersen is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Linedata Services SA and Mersen SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mersen SA and Linedata Services 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 Linedata Services SA are associated (or correlated) with Mersen SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mersen SA has no effect on the direction of Linedata Services i.e., Linedata Services and Mersen SA go up and down completely randomly.

Pair Corralation between Linedata Services and Mersen SA

Assuming the 90 days trading horizon Linedata Services SA is expected to generate 0.88 times more return on investment than Mersen SA. However, Linedata Services SA is 1.13 times less risky than Mersen SA. It trades about 0.07 of its potential returns per unit of risk. Mersen SA is currently generating about -0.04 per unit of risk. If you would invest  4,460  in Linedata Services SA on September 7, 2024 and sell it today you would earn a total of  3,500  from holding Linedata Services SA or generate 78.48% return on investment over 90 days.

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

Linedata Services SA  vs.  Mersen SA

Linedata Services

Risk-Adjusted Performance

13 of 100

Good

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

Mersen SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mersen SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Linedata Services and Mersen SA

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

The idea behind Linedata Services SA and Mersen 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.

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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.