Correlation Between Solvay SA and Compagnie

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

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

Diversification Opportunities for Solvay SA and Compagnie

0.74

Correlation Coefficient

Solvay SA  Compagnie

Poor diversification

The 3 months correlation between Solvay and Compagnie is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Solvay SA and Compagnie d Entreprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie d Entreprises and Solvay SA 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 Solvay SA are associated (or correlated) with Compagnie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie d Entreprises has no effect on the direction of Solvay SA i.e., Solvay SA and Compagnie go up and down completely randomly.

Pair Corralation between Solvay SA and Compagnie

Assuming the 90 days trading horizon Solvay SA is expected to generate 2.13 times less return on investment than Compagnie. In addition to that, Solvay SA is 1.15 times more volatile than Compagnie d Entreprises. It trades about 0.11 of its total potential returns per unit of risk. Compagnie d Entreprises is currently generating about 0.28 per unit of volatility. If you would invest  585.00  in Compagnie d Entreprises on December 23, 2024 and sell it today you would earn a total of  209.00  from holding Compagnie d Entreprises or generate 35.73% return on investment over 90 days.

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

Solvay SA  vs.  Compagnie d Entreprises

Solvay SA

Risk-Adjusted Performance

OK

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

Compagnie d Entreprises

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie d Entreprises are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Compagnie reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solvay SA and Compagnie

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

The idea behind Solvay SA and Compagnie d Entreprises 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.