Correlation Between National Grid and Engie SA

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

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

Diversification Opportunities for National Grid and Engie SA

0.55

Correlation Coefficient

National Grid  Engie SA

Very weak diversification

The 3 months correlation between National and Engie is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding National Grid plc and Engie SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engie SA and National Grid 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 National Grid plc are associated (or correlated) with Engie SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engie SA has no effect on the direction of National Grid i.e., National Grid and Engie SA go up and down completely randomly.

Pair Corralation between National Grid and Engie SA

Assuming the 90 days trading horizon National Grid plc is expected to generate 1.72 times more return on investment than Engie SA. However, National Grid is 1.72 times more volatile than Engie SA. It trades about 0.02 of its potential returns per unit of risk. Engie SA is currently generating about 0.02 per unit of risk. If you would invest  5,244  in National Grid plc on September 28, 2024 and sell it today you would earn a total of  306.00  from holding National Grid plc or generate 5.84% return on investment over 90 days.

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

National Grid plc  vs.  Engie SA

National Grid plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Engie SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with National Grid and Engie SA

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

The idea behind National Grid plc and Engie 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.