Correlation Between Compagnie and Smcp SAS

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

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

Diversification Opportunities for Compagnie and Smcp SAS

0.68

Correlation Coefficient

Compagnie  Smcp SAS

Poor diversification

The 3 months correlation between Compagnie and Smcp is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Chemins and Smcp SAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smcp SAS and Compagnie 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 Compagnie de Chemins are associated (or correlated) with Smcp SAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smcp SAS has no effect on the direction of Compagnie i.e., Compagnie and Smcp SAS go up and down completely randomly.

Pair Corralation between Compagnie and Smcp SAS

Assuming the 90 days trading horizon Compagnie de Chemins is expected to generate 0.68 times more return on investment than Smcp SAS. However, Compagnie de Chemins is 1.47 times less risky than Smcp SAS. It trades about 0.04 of its potential returns per unit of risk. Smcp SAS is currently generating about -0.02 per unit of risk. If you would invest  67,000  in Compagnie de Chemins on September 26, 2024 and sell it today you would earn a total of  23,000  from holding Compagnie de Chemins or generate 34.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.06%
Values	Daily Returns

Compagnie de Chemins  vs.  Smcp SAS

Compagnie de Chemins

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Chemins are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Compagnie reported solid returns over the last few months and may actually be approaching a breakup point.

Smcp SAS

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smcp SAS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Smcp SAS sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compagnie and Smcp SAS

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

The idea behind Compagnie de Chemins and Smcp SAS 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.