Correlation Between Shell PLC and TotalEnergies

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

By analyzing existing cross correlation between Shell PLC and TotalEnergies SE, you can compare the effects of market volatilities on Shell PLC and TotalEnergies 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 TotalEnergies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shell PLC and TotalEnergies.

Diversification Opportunities for Shell PLC and TotalEnergies

0.82

Correlation Coefficient

Shell PLC  TotalEnergies

Very poor diversification

The 3 months correlation between Shell and TotalEnergies is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC and TotalEnergies SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE has no effect on the direction of Shell PLC i.e., Shell PLC and TotalEnergies go up and down completely randomly.

Pair Corralation between Shell PLC and TotalEnergies

Assuming the 90 days horizon Shell PLC is expected to generate 1.43 times more return on investment than TotalEnergies. However, Shell PLC is 1.43 times more volatile than TotalEnergies SE. It trades about 0.13 of its potential returns per unit of risk. TotalEnergies SE is currently generating about 0.17 per unit of risk. If you would invest  2,981  in Shell PLC on December 24, 2024 and sell it today you would earn a total of  519.00  from holding Shell PLC or generate 17.41% return on investment over 90 days.

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

Shell PLC  vs.  TotalEnergies SE

Shell PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shell PLC reported solid returns over the last few months and may actually be approaching a breakup point.

TotalEnergies SE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies SE are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TotalEnergies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shell PLC and TotalEnergies

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

The idea behind Shell PLC and TotalEnergies SE 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.