Correlation Between Veolia Environnement and Houston Natural

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

By analyzing existing cross correlation between Veolia Environnement SA and Houston Natural Resources, you can compare the effects of market volatilities on Veolia Environnement and Houston Natural 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 Veolia Environnement with a short position of Houston Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Veolia Environnement and Houston Natural.

Diversification Opportunities for Veolia Environnement and Houston Natural

-0.21

Correlation Coefficient

Veolia Environnement  Houston Natural

Very good diversification

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

Pair Corralation between Veolia Environnement and Houston Natural

Assuming the 90 days horizon Veolia Environnement SA is expected to generate 0.17 times more return on investment than Houston Natural. However, Veolia Environnement SA is 5.83 times less risky than Houston Natural. It trades about 0.22 of its potential returns per unit of risk. Houston Natural Resources is currently generating about 0.0 per unit of risk. If you would invest  2,780  in Veolia Environnement SA on December 29, 2024 and sell it today you would earn a total of  647.00  from holding Veolia Environnement SA or generate 23.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	32.79%
Values	Daily Returns

Veolia Environnement SA  vs.  Houston Natural Resources

Veolia Environnement

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Veolia Environnement SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Veolia Environnement reported solid returns over the last few months and may actually be approaching a breakup point.

Houston Natural Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Houston Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Houston Natural is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Veolia Environnement and Houston Natural

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

The idea behind Veolia Environnement SA and Houston Natural Resources 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.