Correlation Between Alstom SA and Parx Plastics

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

By analyzing existing cross correlation between Alstom SA and Parx Plastics NV, you can compare the effects of market volatilities on Alstom SA and Parx Plastics 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 Alstom SA with a short position of Parx Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alstom SA and Parx Plastics.

Diversification Opportunities for Alstom SA and Parx Plastics

0.79

Correlation Coefficient

Alstom SA  Parx Plastics

Poor diversification

The 3 months correlation between Alstom and Parx is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alstom SA and Parx Plastics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parx Plastics NV and Alstom SA 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 Alstom SA are associated (or correlated) with Parx Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parx Plastics NV has no effect on the direction of Alstom SA i.e., Alstom SA and Parx Plastics go up and down completely randomly.

Pair Corralation between Alstom SA and Parx Plastics

Assuming the 90 days trading horizon Alstom SA is expected to generate 1.3 times more return on investment than Parx Plastics. However, Alstom SA is 1.3 times more volatile than Parx Plastics NV. It trades about 0.1 of its potential returns per unit of risk. Parx Plastics NV is currently generating about -0.22 per unit of risk. If you would invest  2,116  in Alstom SA on September 24, 2024 and sell it today you would earn a total of  76.00  from holding Alstom SA or generate 3.59% return on investment over 90 days.

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

Alstom SA  vs.  Parx Plastics NV

Alstom SA

Risk-Adjusted Performance

11 of 100

Good

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

Parx Plastics NV

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Parx Plastics NV are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Parx Plastics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alstom SA and Parx Plastics

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

The idea behind Alstom SA and Parx Plastics NV 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.