Correlation Between Eni SPA and Shell PLC

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

By analyzing existing cross correlation between Eni SpA ADR and Shell PLC, you can compare the effects of market volatilities on Eni SPA and Shell PLC 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 Eni SPA with a short position of Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eni SPA and Shell PLC.

Diversification Opportunities for Eni SPA and Shell PLC

0.67

Correlation Coefficient

Eni SPA  Shell PLC

Poor diversification

The 3 months correlation between Eni and Shell is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA ADR and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC and Eni SPA 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 Eni SpA ADR are associated (or correlated) with Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of Eni SPA i.e., Eni SPA and Shell PLC go up and down completely randomly.

Pair Corralation between Eni SPA and Shell PLC

Taking into account the 90-day investment horizon Eni SpA ADR is expected to under-perform the Shell PLC. But the stock apears to be less risky and, when comparing its historical volatility, Eni SpA ADR is 2.54 times less risky than Shell PLC. The stock trades about -0.12 of its potential returns per unit of risk. The Shell PLC is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,260  in Shell PLC on September 16, 2024 and sell it today you would lose (89.00) from holding Shell PLC or give up 2.73% of portfolio value over 90 days.

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

Eni SpA ADR  vs.  Shell PLC

Eni SpA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Shell PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Shell PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eni SPA and Shell PLC

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

The idea behind Eni SpA ADR and Shell PLC 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.