Correlation Between Tenaris SA and GMO Internet

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

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

Diversification Opportunities for Tenaris SA and GMO Internet

0.21

Correlation Coefficient

Tenaris SA  GMO Internet

Modest diversification

The 3 months correlation between Tenaris and GMO is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Tenaris SA ADR and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Tenaris 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 Tenaris SA ADR are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Tenaris SA i.e., Tenaris SA and GMO Internet go up and down completely randomly.

Pair Corralation between Tenaris SA and GMO Internet

Allowing for the 90-day total investment horizon Tenaris SA ADR is expected to generate 0.65 times more return on investment than GMO Internet. However, Tenaris SA ADR is 1.55 times less risky than GMO Internet. It trades about 0.04 of its potential returns per unit of risk. GMO Internet is currently generating about -0.16 per unit of risk. If you would invest  3,849  in Tenaris SA ADR on October 11, 2024 and sell it today you would earn a total of  29.00  from holding Tenaris SA ADR or generate 0.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Tenaris SA ADR  vs.  GMO Internet

Tenaris SA ADR

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Tenaris SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tenaris SA and GMO Internet

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

The idea behind Tenaris SA ADR and GMO Internet 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.