Correlation Between Sembcorp Marine and Safran SA

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

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

Diversification Opportunities for Sembcorp Marine and Safran SA

0.27

Correlation Coefficient

Sembcorp Marine  Safran SA

Modest diversification

The 3 months correlation between Sembcorp and Safran is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Sembcorp Marine and Safran SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safran SA and Sembcorp Marine 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 Sembcorp Marine are associated (or correlated) with Safran SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safran SA has no effect on the direction of Sembcorp Marine i.e., Sembcorp Marine and Safran SA go up and down completely randomly.

Pair Corralation between Sembcorp Marine and Safran SA

Assuming the 90 days horizon Sembcorp Marine is expected to generate 3.44 times more return on investment than Safran SA. However, Sembcorp Marine is 3.44 times more volatile than Safran SA. It trades about 0.07 of its potential returns per unit of risk. Safran SA is currently generating about 0.2 per unit of risk. If you would invest  134.00  in Sembcorp Marine on December 29, 2024 and sell it today you would earn a total of  20.00  from holding Sembcorp Marine or generate 14.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.31%
Values	Daily Returns

Sembcorp Marine  vs.  Safran SA

Sembcorp Marine

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sembcorp Marine are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady primary indicators, Sembcorp Marine reported solid returns over the last few months and may actually be approaching a breakup point.

Safran SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Safran SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Safran SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sembcorp Marine and Safran SA

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

The idea behind Sembcorp Marine and Safran 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.