Correlation Between Everest Group and COFACE SA

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

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

Diversification Opportunities for Everest Group and COFACE SA

0.2

Correlation Coefficient

Everest Group  COFACE SA

Modest diversification

The 3 months correlation between Everest and COFACE is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Everest Group and COFACE SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COFACE SA and Everest Group 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 Everest Group are associated (or correlated) with COFACE SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COFACE SA has no effect on the direction of Everest Group i.e., Everest Group and COFACE SA go up and down completely randomly.

Pair Corralation between Everest Group and COFACE SA

Assuming the 90 days horizon Everest Group is expected to generate 1.36 times more return on investment than COFACE SA. However, Everest Group is 1.36 times more volatile than COFACE SA. It trades about -0.03 of its potential returns per unit of risk. COFACE SA is currently generating about -0.07 per unit of risk. If you would invest  34,970  in Everest Group on September 23, 2024 and sell it today you would lose (1,550) from holding Everest Group or give up 4.43% of portfolio value over 90 days.

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

Everest Group  vs.  COFACE SA

Everest Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

COFACE SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Everest Group and COFACE SA

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

The idea behind Everest Group and COFACE SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.