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 and Shell PLC ADR, 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

0.34

Correlation Coefficient

Eni SpA  Shell PLC

Weak diversification

The 3 months correlation between Eni and Shell is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA and Shell PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC ADR 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 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 ADR 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

Assuming the 90 days horizon Eni SpA is expected to under-perform the Shell PLC. In addition to that, Eni SpA is 2.3 times more volatile than Shell PLC ADR. It trades about -0.05 of its total potential returns per unit of risk. Shell PLC ADR is currently generating about -0.06 per unit of volatility. If you would invest  6,735  in Shell PLC ADR on September 16, 2024 and sell it today you would lose (381.00) from holding Shell PLC ADR or give up 5.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.85%
Values	Daily Returns

Eni SpA  vs.  Shell PLC ADR

Eni SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Shell PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Shell PLC is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

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 and Shell PLC ADR 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 CEOs Directory module to screen CEOs from public companies around the world.