Correlation Between UniCredit SpA and Societe Generale

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

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

Diversification Opportunities for UniCredit SpA and Societe Generale

0.97

Correlation Coefficient

UniCredit SpA  Societe Generale

Almost no diversification

The 3 months correlation between UniCredit and Societe is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding UniCredit SpA ADR and Societe Generale ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Societe Generale ADR and UniCredit SpA 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 UniCredit SpA ADR are associated (or correlated) with Societe Generale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Societe Generale ADR has no effect on the direction of UniCredit SpA i.e., UniCredit SpA and Societe Generale go up and down completely randomly.

Pair Corralation between UniCredit SpA and Societe Generale

Assuming the 90 days horizon UniCredit SpA is expected to generate 1.5 times less return on investment than Societe Generale. But when comparing it to its historical volatility, UniCredit SpA ADR is 1.38 times less risky than Societe Generale. It trades about 0.32 of its potential returns per unit of risk. Societe Generale ADR is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  519.00  in Societe Generale ADR on December 1, 2024 and sell it today you would earn a total of  295.00  from holding Societe Generale ADR or generate 56.84% return on investment over 90 days.

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

UniCredit SpA ADR  vs.  Societe Generale ADR

UniCredit SpA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in UniCredit SpA ADR are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, UniCredit SpA showed solid returns over the last few months and may actually be approaching a breakup point.

Societe Generale ADR

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Societe Generale ADR are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Societe Generale showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UniCredit SpA and Societe Generale

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

The idea behind UniCredit SpA ADR and Societe Generale 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.