Correlation Between Solvay SA and EVS Broadcast

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

By analyzing existing cross correlation between Solvay SA and EVS Broadcast Equipment, you can compare the effects of market volatilities on Solvay SA and EVS Broadcast 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 EVS Broadcast. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solvay SA and EVS Broadcast.

Diversification Opportunities for Solvay SA and EVS Broadcast

-0.24

Correlation Coefficient

Solvay SA  EVS Broadcast

Very good diversification

The 3 months correlation between Solvay and EVS is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Solvay SA and EVS Broadcast Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EVS Broadcast Equipment 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 EVS Broadcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EVS Broadcast Equipment has no effect on the direction of Solvay SA i.e., Solvay SA and EVS Broadcast go up and down completely randomly.

Pair Corralation between Solvay SA and EVS Broadcast

Assuming the 90 days trading horizon Solvay SA is expected to generate 1.57 times more return on investment than EVS Broadcast. However, Solvay SA is 1.57 times more volatile than EVS Broadcast Equipment. It trades about 0.02 of its potential returns per unit of risk. EVS Broadcast Equipment is currently generating about -0.03 per unit of risk. If you would invest  3,218  in Solvay SA on August 31, 2024 and sell it today you would earn a total of  24.00  from holding Solvay SA or generate 0.75% return on investment over 90 days.

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

Solvay SA  vs.  EVS Broadcast Equipment

Solvay SA

Risk-Adjusted Performance

1 of 100

Weak

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

EVS Broadcast Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EVS Broadcast Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, EVS Broadcast is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Solvay SA and EVS Broadcast

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

The idea behind Solvay SA and EVS Broadcast Equipment 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.