Correlation Between Renault SA and Subaru Corp

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

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

Diversification Opportunities for Renault SA and Subaru Corp

0.38

Correlation Coefficient

Renault SA  Subaru Corp

Weak diversification

The 3 months correlation between Renault and Subaru is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Renault SA and Subaru Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Subaru Corp ADR and Renault 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 Renault SA are associated (or correlated) with Subaru Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Subaru Corp ADR has no effect on the direction of Renault SA i.e., Renault SA and Subaru Corp go up and down completely randomly.

Pair Corralation between Renault SA and Subaru Corp

Assuming the 90 days horizon Renault SA is expected to under-perform the Subaru Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Renault SA is 1.04 times less risky than Subaru Corp. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Subaru Corp ADR is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  911.00  in Subaru Corp ADR on September 5, 2024 and sell it today you would lose (77.00) from holding Subaru Corp ADR or give up 8.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Renault SA  vs.  Subaru Corp ADR

Renault SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renault SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Subaru Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Subaru Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Renault SA and Subaru Corp

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

The idea behind Renault SA and Subaru Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.