Correlation Between Compagnie and ABC Arbitrage

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

By analyzing existing cross correlation between Compagnie de Chemins and ABC arbitrage SA, you can compare the effects of market volatilities on Compagnie and ABC Arbitrage 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 Compagnie with a short position of ABC Arbitrage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie and ABC Arbitrage.

Diversification Opportunities for Compagnie and ABC Arbitrage

0.65

Correlation Coefficient

Compagnie  ABC Arbitrage

Poor diversification

The 3 months correlation between Compagnie and ABC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Chemins and ABC arbitrage SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC arbitrage SA and Compagnie 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 Compagnie de Chemins are associated (or correlated) with ABC Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC arbitrage SA has no effect on the direction of Compagnie i.e., Compagnie and ABC Arbitrage go up and down completely randomly.

Pair Corralation between Compagnie and ABC Arbitrage

Assuming the 90 days trading horizon Compagnie de Chemins is expected to generate 1.73 times more return on investment than ABC Arbitrage. However, Compagnie is 1.73 times more volatile than ABC arbitrage SA. It trades about 0.04 of its potential returns per unit of risk. ABC arbitrage SA is currently generating about -0.02 per unit of risk. If you would invest  66,000  in Compagnie de Chemins on October 12, 2024 and sell it today you would earn a total of  26,000  from holding Compagnie de Chemins or generate 39.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.02%
Values	Daily Returns

Compagnie de Chemins  vs.  ABC arbitrage SA

Compagnie de Chemins

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Chemins are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Compagnie may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ABC arbitrage SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABC arbitrage SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABC Arbitrage may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Compagnie and ABC Arbitrage

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

The idea behind Compagnie de Chemins and ABC arbitrage 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.