Correlation Between Renault SA and Valeo SA

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

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

Diversification Opportunities for Renault SA and Valeo SA

0.91

Correlation Coefficient

Renault SA  Valeo SA

Almost no diversification

The 3 months correlation between Renault and Valeo is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Renault SA and Valeo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valeo SA 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 Valeo SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valeo SA has no effect on the direction of Renault SA i.e., Renault SA and Valeo SA go up and down completely randomly.

Pair Corralation between Renault SA and Valeo SA

Assuming the 90 days trading horizon Renault SA is expected to generate 0.72 times more return on investment than Valeo SA. However, Renault SA is 1.39 times less risky than Valeo SA. It trades about 0.04 of its potential returns per unit of risk. Valeo SA is currently generating about -0.04 per unit of risk. If you would invest  3,501  in Renault SA on December 4, 2024 and sell it today you would earn a total of  1,320  from holding Renault SA or generate 37.7% return on investment over 90 days.

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

Renault SA  vs.  Valeo SA

Renault SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Renault SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Renault SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Valeo SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valeo SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Valeo SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Renault SA and Valeo SA

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

The idea behind Renault SA and Valeo 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.