Correlation Between Vallourec and Compagnie

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

By analyzing existing cross correlation between Vallourec and Compagnie de Chemins, you can compare the effects of market volatilities on Vallourec and Compagnie 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 Compagnie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vallourec and Compagnie.

Diversification Opportunities for Vallourec and Compagnie

0.83

Correlation Coefficient

Vallourec  Compagnie

Very poor diversification

The 3 months correlation between Vallourec and Compagnie is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Vallourec and Compagnie de Chemins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie de Chemins 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 Compagnie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie de Chemins has no effect on the direction of Vallourec i.e., Vallourec and Compagnie go up and down completely randomly.

Pair Corralation between Vallourec and Compagnie

Assuming the 90 days horizon Vallourec is expected to generate 1.33 times less return on investment than Compagnie. But when comparing it to its historical volatility, Vallourec is 1.13 times less risky than Compagnie. It trades about 0.03 of its potential returns per unit of risk. Compagnie de Chemins is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  65,500  in Compagnie de Chemins on September 23, 2024 and sell it today you would earn a total of  24,500  from holding Compagnie de Chemins or generate 37.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.08%
Values	Daily Returns

Vallourec  vs.  Compagnie de Chemins

Vallourec

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vallourec are ranked lower than 11 (%) 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.

Compagnie de Chemins

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Vallourec and Compagnie

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

The idea behind Vallourec and Compagnie de Chemins 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.

Check out your portfolio center.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..