Correlation Between Thales SA and Leonardo SpA

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

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

Diversification Opportunities for Thales SA and Leonardo SpA

-0.49

Correlation Coefficient

Thales SA  Leonardo SpA

Very good diversification

The 3 months correlation between Thales and Leonardo is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Thales SA and Leonardo SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leonardo SpA ADR and Thales 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 Thales SA are associated (or correlated) with Leonardo SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leonardo SpA ADR has no effect on the direction of Thales SA i.e., Thales SA and Leonardo SpA go up and down completely randomly.

Pair Corralation between Thales SA and Leonardo SpA

Assuming the 90 days horizon Thales SA is expected to under-perform the Leonardo SpA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Thales SA is 1.45 times less risky than Leonardo SpA. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Leonardo SpA ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,171  in Leonardo SpA ADR on September 29, 2024 and sell it today you would earn a total of  177.00  from holding Leonardo SpA ADR or generate 15.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Thales SA  vs.  Leonardo SpA ADR

Thales SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thales SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Leonardo SpA ADR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Leonardo SpA ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Leonardo SpA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thales SA and Leonardo SpA

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

The idea behind Thales SA and Leonardo SpA ADR 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.