Correlation Between Alstom SA and Smcp SAS

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

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

Diversification Opportunities for Alstom SA and Smcp SAS

0.73

Correlation Coefficient

Alstom SA  Smcp SAS

Poor diversification

The 3 months correlation between Alstom and Smcp is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Alstom SA and Smcp SAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smcp SAS 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 Smcp SAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smcp SAS has no effect on the direction of Alstom SA i.e., Alstom SA and Smcp SAS go up and down completely randomly.

Pair Corralation between Alstom SA and Smcp SAS

Assuming the 90 days trading horizon Alstom SA is expected to generate 0.94 times more return on investment than Smcp SAS. However, Alstom SA is 1.07 times less risky than Smcp SAS. It trades about 0.02 of its potential returns per unit of risk. Smcp SAS is currently generating about 0.01 per unit of risk. If you would invest  2,098  in Alstom SA on September 26, 2024 and sell it today you would earn a total of  57.00  from holding Alstom SA or generate 2.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.68%
Values	Daily Returns

Alstom SA  vs.  Smcp SAS

Alstom SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alstom SA are ranked lower than 8 (%) 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.

Smcp SAS

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smcp SAS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Smcp SAS sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alstom SA and Smcp SAS

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

The idea behind Alstom SA and Smcp SAS 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.