Correlation Between Eramet SA and Gevelot

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

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

Diversification Opportunities for Eramet SA and Gevelot

0.88

Correlation Coefficient

Eramet SA  Gevelot

Very poor diversification

The 3 months correlation between Eramet and Gevelot is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Eramet SA and Gevelot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gevelot and Eramet 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 Eramet SA are associated (or correlated) with Gevelot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gevelot has no effect on the direction of Eramet SA i.e., Eramet SA and Gevelot go up and down completely randomly.

Pair Corralation between Eramet SA and Gevelot

Assuming the 90 days trading horizon Eramet SA is expected to under-perform the Gevelot. In addition to that, Eramet SA is 2.55 times more volatile than Gevelot. It trades about -0.03 of its total potential returns per unit of risk. Gevelot is currently generating about -0.06 per unit of volatility. If you would invest  19,500  in Gevelot on September 12, 2024 and sell it today you would lose (1,100) from holding Gevelot or give up 5.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Eramet SA  vs.  Gevelot

Eramet SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gevelot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gevelot has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Gevelot is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Eramet SA and Gevelot

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

The idea behind Eramet SA and Gevelot 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.