Correlation Between Thales SA and Alstom SA

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

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

Diversification Opportunities for Thales SA and Alstom SA

0.36

Correlation Coefficient

Thales SA  Alstom SA

Weak diversification

The 3 months correlation between Thales and Alstom is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Thales SA and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA and Thales 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 Thales SA are associated (or correlated) with Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of Thales SA i.e., Thales SA and Alstom SA go up and down completely randomly.

Pair Corralation between Thales SA and Alstom SA

Assuming the 90 days horizon Thales SA is expected to under-perform the Alstom SA. But the stock apears to be less risky and, when comparing its historical volatility, Thales SA is 1.63 times less risky than Alstom SA. The stock trades about -0.01 of its potential returns per unit of risk. The Alstom SA is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,763  in Alstom SA on September 5, 2024 and sell it today you would earn a total of  352.00  from holding Alstom SA or generate 19.97% return on investment over 90 days.

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

Thales SA  vs.  Alstom SA

Thales SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thales SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Thales SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Alstom SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alstom SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alstom SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Thales SA and Alstom SA

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

The idea behind Thales SA and Alstom 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.