Correlation Between Compagnie and Vallourec

Can any of the company-specific risk be diversified away by investing in both Compagnie and Vallourec 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 Vallourec 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 Vallourec, you can compare the effects of market volatilities on Compagnie and Vallourec 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 Vallourec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie and Vallourec.

Diversification Opportunities for Compagnie and Vallourec

0.77

Correlation Coefficient

Compagnie  Vallourec

Poor diversification

The 3 months correlation between Compagnie and Vallourec is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Chemins and Vallourec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vallourec 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 Vallourec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vallourec has no effect on the direction of Compagnie i.e., Compagnie and Vallourec go up and down completely randomly.

Pair Corralation between Compagnie and Vallourec

Assuming the 90 days trading horizon Compagnie de Chemins is expected to generate 0.93 times more return on investment than Vallourec. However, Compagnie de Chemins is 1.08 times less risky than Vallourec. It trades about 0.07 of its potential returns per unit of risk. Vallourec is currently generating about 0.07 per unit of risk. If you would invest  65,500  in Compagnie de Chemins on October 11, 2024 and sell it today you would earn a total of  26,500  from holding Compagnie de Chemins or generate 40.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.66%
Values	Daily Returns

Compagnie de Chemins  vs.  Vallourec

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.

Vallourec

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vallourec are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Vallourec sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compagnie and Vallourec

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

The idea behind Compagnie de Chemins and Vallourec 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.