Correlation Between Plastiques and Les Hotels

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

By analyzing existing cross correlation between Plastiques du Val and Les Hotels Bav, you can compare the effects of market volatilities on Plastiques and Les Hotels 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 Plastiques with a short position of Les Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plastiques and Les Hotels.

Diversification Opportunities for Plastiques and Les Hotels

0.55

Correlation Coefficient

Plastiques  Les Hotels

Very weak diversification

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

Pair Corralation between Plastiques and Les Hotels

Assuming the 90 days trading horizon Plastiques du Val is expected to under-perform the Les Hotels. In addition to that, Plastiques is 1.33 times more volatile than Les Hotels Bav. It trades about -0.05 of its total potential returns per unit of risk. Les Hotels Bav is currently generating about 0.04 per unit of volatility. If you would invest  6,000  in Les Hotels Bav on October 20, 2024 and sell it today you would earn a total of  1,700  from holding Les Hotels Bav or generate 28.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.84%
Values	Daily Returns

Plastiques du Val  vs.  Les Hotels Bav

Plastiques du Val

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Plastiques du Val are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Plastiques sustained solid returns over the last few months and may actually be approaching a breakup point.

Les Hotels Bav

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Les Hotels Bav are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Les Hotels may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Plastiques and Les Hotels

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

The idea behind Plastiques du Val and Les Hotels Bav 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.