Correlation Between Shell PLC and Eni SPA

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

By analyzing existing cross correlation between Shell PLC and Eni SpA ADR, you can compare the effects of market volatilities on Shell PLC and Eni SPA 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 Shell PLC with a short position of Eni SPA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shell PLC and Eni SPA.

Diversification Opportunities for Shell PLC and Eni SPA

0.65

Correlation Coefficient

Shell PLC  Eni SPA

Poor diversification

The 3 months correlation between Shell and Eni is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC and Eni SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eni SpA ADR and Shell PLC 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 Shell PLC are associated (or correlated) with Eni SPA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eni SpA ADR has no effect on the direction of Shell PLC i.e., Shell PLC and Eni SPA go up and down completely randomly.

Pair Corralation between Shell PLC and Eni SPA

Assuming the 90 days horizon Shell PLC is expected to generate 2.47 times more return on investment than Eni SPA. However, Shell PLC is 2.47 times more volatile than Eni SpA ADR. It trades about 0.0 of its potential returns per unit of risk. Eni SpA ADR is currently generating about -0.08 per unit of risk. If you would invest  3,299  in Shell PLC on September 13, 2024 and sell it today you would lose (95.00) from holding Shell PLC or give up 2.88% of portfolio value over 90 days.

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

Shell PLC  vs.  Eni SpA ADR

Shell PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Eni SpA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Eni SPA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Shell PLC and Eni SPA

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

The idea behind Shell PLC and Eni SpA 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .