Correlation Between Vallourec and CMG Cleantech

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

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

Diversification Opportunities for Vallourec and CMG Cleantech

0.48

Correlation Coefficient

Vallourec  CMG Cleantech

Very weak diversification

The 3 months correlation between Vallourec and CMG is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Vallourec and CMG Cleantech SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMG Cleantech SA 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 CMG Cleantech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMG Cleantech SA has no effect on the direction of Vallourec i.e., Vallourec and CMG Cleantech go up and down completely randomly.

Pair Corralation between Vallourec and CMG Cleantech

Assuming the 90 days horizon Vallourec is expected to under-perform the CMG Cleantech. But the stock apears to be less risky and, when comparing its historical volatility, Vallourec is 1.45 times less risky than CMG Cleantech. The stock trades about -0.06 of its potential returns per unit of risk. The CMG Cleantech SA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  119.00  in CMG Cleantech SA on September 25, 2024 and sell it today you would earn a total of  10.00  from holding CMG Cleantech SA or generate 8.4% return on investment over 90 days.

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

Vallourec  vs.  CMG Cleantech SA

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.

CMG Cleantech SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMG Cleantech SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, CMG Cleantech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vallourec and CMG Cleantech

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

The idea behind Vallourec and CMG Cleantech 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.