Correlation Between Stef SA and Societe LDC

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

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

Diversification Opportunities for Stef SA and Societe LDC

-0.61

Correlation Coefficient

Stef SA  Societe LDC

Excellent diversification

The 3 months correlation between Stef and Societe is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Stef SA and Societe LDC SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Societe LDC SA and Stef 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 Stef SA are associated (or correlated) with Societe LDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Societe LDC SA has no effect on the direction of Stef SA i.e., Stef SA and Societe LDC go up and down completely randomly.

Pair Corralation between Stef SA and Societe LDC

Assuming the 90 days trading horizon Stef SA is expected to under-perform the Societe LDC. In addition to that, Stef SA is 1.19 times more volatile than Societe LDC SA. It trades about -0.06 of its total potential returns per unit of risk. Societe LDC SA is currently generating about 0.04 per unit of volatility. If you would invest  6,814  in Societe LDC SA on December 30, 2024 and sell it today you would earn a total of  170.00  from holding Societe LDC SA or generate 2.49% return on investment over 90 days.

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

Stef SA  vs.  Societe LDC SA

Stef SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stef SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Stef SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Societe LDC SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Societe LDC SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Societe LDC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stef SA and Societe LDC

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

The idea behind Stef SA and Societe LDC 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.