Correlation Between Vallourec and Dassault Systemes

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

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

Diversification Opportunities for Vallourec and Dassault Systemes

-0.25

Correlation Coefficient

Vallourec  Dassault Systemes

Very good diversification

The 3 months correlation between Vallourec and Dassault is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Vallourec and Dassault Systemes SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dassault Systemes and Vallourec 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 Vallourec are associated (or correlated) with Dassault Systemes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dassault Systemes has no effect on the direction of Vallourec i.e., Vallourec and Dassault Systemes go up and down completely randomly.

Pair Corralation between Vallourec and Dassault Systemes

Assuming the 90 days horizon Vallourec is expected to generate 1.28 times more return on investment than Dassault Systemes. However, Vallourec is 1.28 times more volatile than Dassault Systemes SE. It trades about 0.04 of its potential returns per unit of risk. Dassault Systemes SE is currently generating about -0.05 per unit of risk. If you would invest  1,381  in Vallourec on September 28, 2024 and sell it today you would earn a total of  254.00  from holding Vallourec or generate 18.39% return on investment over 90 days.

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

Vallourec  vs.  Dassault Systemes SE

Vallourec

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vallourec are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Vallourec sustained solid returns over the last few months and may actually be approaching a breakup point.

Dassault Systemes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dassault Systemes SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dassault Systemes is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vallourec and Dassault Systemes

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

The idea behind Vallourec and Dassault Systemes SE 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.