Correlation Between TotalEnergies and Esso SAF

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

By analyzing existing cross correlation between TotalEnergies EP Gabon and Esso SAF, you can compare the effects of market volatilities on TotalEnergies and Esso SAF 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 TotalEnergies with a short position of Esso SAF. Check out your portfolio center. Please also check ongoing floating volatility patterns of TotalEnergies and Esso SAF.

Diversification Opportunities for TotalEnergies and Esso SAF

-0.25

Correlation Coefficient

TotalEnergies  Esso SAF

Very good diversification

The 3 months correlation between TotalEnergies and Esso is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding TotalEnergies EP Gabon and Esso SAF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Esso SAF and TotalEnergies 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 TotalEnergies EP Gabon are associated (or correlated) with Esso SAF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Esso SAF has no effect on the direction of TotalEnergies i.e., TotalEnergies and Esso SAF go up and down completely randomly.

Pair Corralation between TotalEnergies and Esso SAF

Assuming the 90 days horizon TotalEnergies EP Gabon is expected to generate 1.09 times more return on investment than Esso SAF. However, TotalEnergies is 1.09 times more volatile than Esso SAF. It trades about 0.11 of its potential returns per unit of risk. Esso SAF is currently generating about -0.14 per unit of risk. If you would invest  15,650  in TotalEnergies EP Gabon on September 3, 2024 and sell it today you would earn a total of  2,800  from holding TotalEnergies EP Gabon or generate 17.89% return on investment over 90 days.

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

TotalEnergies EP Gabon  vs.  Esso SAF

TotalEnergies EP Gabon

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies EP Gabon are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TotalEnergies sustained solid returns over the last few months and may actually be approaching a breakup point.

Esso SAF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Esso SAF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with TotalEnergies and Esso SAF

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

The idea behind TotalEnergies EP Gabon and Esso SAF 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.