Correlation Between Medical Properties and Veolia Environnement

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

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

Diversification Opportunities for Medical Properties and Veolia Environnement

0.83

Correlation Coefficient

Medical Properties  Veolia Environnement

Very poor diversification

The 3 months correlation between Medical and Veolia is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Medical Properties Trust and Veolia Environnement SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement and Medical Properties 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 Medical Properties Trust 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 Medical Properties i.e., Medical Properties and Veolia Environnement go up and down completely randomly.

Pair Corralation between Medical Properties and Veolia Environnement

Assuming the 90 days trading horizon Medical Properties Trust is expected to generate 2.65 times more return on investment than Veolia Environnement. However, Medical Properties is 2.65 times more volatile than Veolia Environnement SA. It trades about 0.21 of its potential returns per unit of risk. Veolia Environnement SA is currently generating about 0.2 per unit of risk. If you would invest  353.00  in Medical Properties Trust on December 24, 2024 and sell it today you would earn a total of  187.00  from holding Medical Properties Trust or generate 52.97% return on investment over 90 days.

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

Medical Properties Trust  vs.  Veolia Environnement SA

Medical Properties Trust

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Medical Properties Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Medical Properties unveiled solid returns over the last few months and may actually be approaching a breakup point.

Veolia Environnement

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Veolia Environnement SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Veolia Environnement unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Medical Properties and Veolia Environnement

The main advantage of trading using opposite Medical Properties and Veolia Environnement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medical Properties 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 Medical Properties Trust and Veolia Environnement 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.