Correlation Between Veolia Environnement and Alstom SA

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

By analyzing existing cross correlation between Veolia Environnement VE and Alstom SA, you can compare the effects of market volatilities on Veolia Environnement and Alstom SA 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 Alstom SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Veolia Environnement and Alstom SA.

Diversification Opportunities for Veolia Environnement and Alstom SA

-0.56

Correlation Coefficient

Veolia Environnement  Alstom SA

Excellent diversification

The 3 months correlation between Veolia and Alstom is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Veolia Environnement VE and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA 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 VE are associated (or correlated) with Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of Veolia Environnement i.e., Veolia Environnement and Alstom SA go up and down completely randomly.

Pair Corralation between Veolia Environnement and Alstom SA

Assuming the 90 days trading horizon Veolia Environnement VE is expected to under-perform the Alstom SA. But the stock apears to be less risky and, when comparing its historical volatility, Veolia Environnement VE is 2.45 times less risky than Alstom SA. The stock trades about -0.12 of its potential returns per unit of risk. The Alstom SA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,856  in Alstom SA on August 31, 2024 and sell it today you would earn a total of  273.00  from holding Alstom SA or generate 14.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Veolia Environnement VE  vs.  Alstom SA

Veolia Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veolia Environnement VE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Alstom SA

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alstom SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alstom SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Veolia Environnement and Alstom SA

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

The idea behind Veolia Environnement VE and Alstom SA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..