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 ADR, 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 ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC ADR 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 ADR 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. In addition to that, TotalEnergies is 1.05 times more volatile than Shell PLC ADR. It trades about -0.15 of its total potential returns per unit of risk. Shell PLC ADR is currently generating about -0.07 per unit of volatility. If you would invest  6,865  in Shell PLC ADR on September 1, 2024 and sell it today you would lose (391.00) from holding Shell PLC ADR or give up 5.7% 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 ADR

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 latest conflicting performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Shell PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Shell PLC is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

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 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.