Correlation Between Shell PLC and Adyen NV

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

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

Diversification Opportunities for Shell PLC and Adyen NV

-0.36

Correlation Coefficient

Shell PLC  Adyen NV

Very good diversification

The 3 months correlation between Shell and Adyen is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC and Adyen NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adyen NV 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 Adyen NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adyen NV has no effect on the direction of Shell PLC i.e., Shell PLC and Adyen NV go up and down completely randomly.

Pair Corralation between Shell PLC and Adyen NV

Assuming the 90 days trading horizon Shell PLC is expected to generate 2.11 times less return on investment than Adyen NV. But when comparing it to its historical volatility, Shell PLC is 2.97 times less risky than Adyen NV. It trades about 0.04 of its potential returns per unit of risk. Adyen NV is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  128,860  in Adyen NV on September 18, 2024 and sell it today you would earn a total of  20,660  from holding Adyen NV or generate 16.03% return on investment over 90 days.

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

Shell PLC  vs.  Adyen NV

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 somewhat strong basic indicators, Shell PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Adyen NV

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Shell PLC and Adyen NV

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

The idea behind Shell PLC and Adyen NV 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.