Correlation Between Technip Energies and Alstom SA

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

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

Diversification Opportunities for Technip Energies and Alstom SA

0.6

Correlation Coefficient

Technip Energies  Alstom SA

Poor diversification

The 3 months correlation between Technip and Alstom is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Technip Energies BV and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA and Technip Energies 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 Technip Energies BV are associated (or correlated) with Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of Technip Energies i.e., Technip Energies and Alstom SA go up and down completely randomly.

Pair Corralation between Technip Energies and Alstom SA

Assuming the 90 days horizon Technip Energies BV is expected to generate 0.74 times more return on investment than Alstom SA. However, Technip Energies BV is 1.35 times less risky than Alstom SA. It trades about 0.07 of its potential returns per unit of risk. Alstom SA is currently generating about 0.02 per unit of risk. If you would invest  1,400  in Technip Energies BV on September 23, 2024 and sell it today you would earn a total of  1,138  from holding Technip Energies BV or generate 81.29% return on investment over 90 days.

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

Technip Energies BV  vs.  Alstom SA

Technip Energies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Technip Energies BV are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Technip Energies sustained solid returns over the last few months and may actually be approaching a breakup point.

Alstom SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alstom SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alstom SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Technip Energies and Alstom SA

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

The idea behind Technip Energies BV and Alstom 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.