Correlation Between TotalEnergies and Shell PLC

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

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

Diversification Opportunities for TotalEnergies and Shell PLC

0.67

Correlation Coefficient

TotalEnergies  Shell PLC

Poor diversification

The 3 months correlation between TotalEnergies and Shell is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding TotalEnergies SE ADR and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC and TotalEnergies 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 TotalEnergies SE ADR are associated (or correlated) with Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of TotalEnergies i.e., TotalEnergies and Shell PLC go up and down completely randomly.

Pair Corralation between TotalEnergies and Shell PLC

Considering the 90-day investment horizon TotalEnergies SE ADR is expected to under-perform the Shell PLC. But the stock apears to be less risky and, when comparing its historical volatility, TotalEnergies SE ADR is 1.86 times less risky than Shell PLC. The stock trades about -0.22 of its potential returns per unit of risk. The Shell PLC is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  3,297  in Shell PLC on September 14, 2024 and sell it today you would lose (147.00) from holding Shell PLC or give up 4.46% of portfolio value over 90 days.

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

TotalEnergies SE ADR  vs.  Shell PLC

TotalEnergies SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TotalEnergies SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Shell PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with TotalEnergies and Shell PLC

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

The idea behind TotalEnergies SE ADR and Shell PLC 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..