Correlation Between Compagnie and Valeo SA

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

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

Diversification Opportunities for Compagnie and Valeo SA

0.21

Correlation Coefficient

Compagnie  Valeo SA

Modest diversification

The 3 months correlation between Compagnie and Valeo is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Saint Gobain and Valeo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valeo SA and Compagnie 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 Compagnie de Saint Gobain 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 Compagnie i.e., Compagnie and Valeo SA go up and down completely randomly.

Pair Corralation between Compagnie and Valeo SA

Assuming the 90 days trading horizon Compagnie de Saint Gobain is expected to generate 0.6 times more return on investment than Valeo SA. However, Compagnie de Saint Gobain is 1.68 times less risky than Valeo SA. It trades about 0.11 of its potential returns per unit of risk. Valeo SA is currently generating about 0.03 per unit of risk. If you would invest  8,620  in Compagnie de Saint Gobain on December 27, 2024 and sell it today you would earn a total of  1,226  from holding Compagnie de Saint Gobain or generate 14.22% return on investment over 90 days.

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

Compagnie de Saint Gobain  vs.  Valeo SA

Compagnie de Saint

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Saint Gobain are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Compagnie sustained solid returns over the last few months and may actually be approaching a breakup point.

Valeo SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valeo SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Valeo SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compagnie and Valeo SA

The main advantage of trading using opposite Compagnie and Valeo SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compagnie 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 Compagnie de Saint Gobain 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.

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.