Correlation Between Neoen SA and VERBUND AG

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

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

Diversification Opportunities for Neoen SA and VERBUND AG

0.5

Correlation Coefficient

Neoen SA  VERBUND AG

Very weak diversification

The 3 months correlation between Neoen and VERBUND is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Neoen SA and VERBUND AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VERBUND AG ADR and Neoen 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 Neoen SA are associated (or correlated) with VERBUND AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VERBUND AG ADR has no effect on the direction of Neoen SA i.e., Neoen SA and VERBUND AG go up and down completely randomly.

Pair Corralation between Neoen SA and VERBUND AG

Assuming the 90 days horizon Neoen SA is expected to generate 0.42 times more return on investment than VERBUND AG. However, Neoen SA is 2.39 times less risky than VERBUND AG. It trades about -0.06 of its potential returns per unit of risk. VERBUND AG ADR is currently generating about -0.07 per unit of risk. If you would invest  3,976  in Neoen SA on December 29, 2024 and sell it today you would lose (106.00) from holding Neoen SA or give up 2.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Neoen SA  vs.  VERBUND AG ADR

Neoen SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Neoen SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Neoen SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

VERBUND AG ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days VERBUND AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Neoen SA and VERBUND AG

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

The idea behind Neoen SA and VERBUND AG ADR 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.