Correlation Between Cogent Communications and Veolia Environnement

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

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

Diversification Opportunities for Cogent Communications and Veolia Environnement

-0.68

Correlation Coefficient

Cogent Communications  Veolia Environnement

Excellent diversification

The 3 months correlation between Cogent and Veolia is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Holdings and Veolia Environnement SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement and Cogent Communications 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 Cogent Communications Holdings are associated (or correlated) with Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of Cogent Communications i.e., Cogent Communications and Veolia Environnement go up and down completely randomly.

Pair Corralation between Cogent Communications and Veolia Environnement

Assuming the 90 days trading horizon Cogent Communications Holdings is expected to under-perform the Veolia Environnement. In addition to that, Cogent Communications is 1.68 times more volatile than Veolia Environnement SA. It trades about -0.06 of its total potential returns per unit of risk. Veolia Environnement SA is currently generating about 0.23 per unit of volatility. If you would invest  2,680  in Veolia Environnement SA on December 22, 2024 and sell it today you would earn a total of  498.00  from holding Veolia Environnement SA or generate 18.58% return on investment over 90 days.

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

Cogent Communications Holdings  vs.  Veolia Environnement SA

Cogent Communications

Risk-Adjusted Performance

Very Weak

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

Veolia Environnement

Risk-Adjusted Performance

Solid

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

Pair Trading with Cogent Communications and Veolia Environnement

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

The idea behind Cogent Communications Holdings and Veolia Environnement 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 Transaction History module to view history of all your transactions and understand their impact on performance.