Correlation Between Mersen SA and Neotion SA

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

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

Diversification Opportunities for Mersen SA and Neotion SA

-0.88

Correlation Coefficient

Mersen SA  Neotion SA

Pay attention - limited upside

The 3 months correlation between Mersen and Neotion is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Mersen SA and Neotion SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neotion SA and Mersen SA 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 Mersen SA are associated (or correlated) with Neotion SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neotion SA has no effect on the direction of Mersen SA i.e., Mersen SA and Neotion SA go up and down completely randomly.

Pair Corralation between Mersen SA and Neotion SA

Assuming the 90 days trading horizon Mersen SA is expected to under-perform the Neotion SA. But the stock apears to be less risky and, when comparing its historical volatility, Mersen SA is 1.35 times less risky than Neotion SA. The stock trades about -0.14 of its potential returns per unit of risk. The Neotion SA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Neotion SA on September 12, 2024 and sell it today you would earn a total of  8.00  from holding Neotion SA or generate 19.05% return on investment over 90 days.

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

Mersen SA  vs.  Neotion SA

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.

Neotion SA

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Neotion SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Neotion SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mersen SA and Neotion SA

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

The idea behind Mersen SA and Neotion 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.