Correlation Between Alstom SA and Vallourec

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

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

Diversification Opportunities for Alstom SA and Vallourec

0.74

Correlation Coefficient

Alstom SA  Vallourec

Poor diversification

The 3 months correlation between Alstom and Vallourec is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Alstom SA and Vallourec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vallourec 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 Vallourec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vallourec has no effect on the direction of Alstom SA i.e., Alstom SA and Vallourec go up and down completely randomly.

Pair Corralation between Alstom SA and Vallourec

Assuming the 90 days trading horizon Alstom SA is expected to generate 4.11 times less return on investment than Vallourec. In addition to that, Alstom SA is 1.26 times more volatile than Vallourec. It trades about 0.04 of its total potential returns per unit of risk. Vallourec is currently generating about 0.21 per unit of volatility. If you would invest  1,448  in Vallourec on August 30, 2024 and sell it today you would earn a total of  176.00  from holding Vallourec or generate 12.15% 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.  Vallourec

Alstom SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alstom SA are ranked lower than 6 (%) 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.

Vallourec

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vallourec are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Vallourec may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Alstom SA and Vallourec

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

The idea behind Alstom SA and Vallourec 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.