Correlation Between Ferrari NV and Renault SA

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

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

Diversification Opportunities for Ferrari NV and Renault SA

0.35

Correlation Coefficient

Ferrari NV  Renault SA

Weak diversification

The 3 months correlation between Ferrari and Renault is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and Renault SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renault SA and Ferrari NV 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 Ferrari NV are associated (or correlated) with Renault SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renault SA has no effect on the direction of Ferrari NV i.e., Ferrari NV and Renault SA go up and down completely randomly.

Pair Corralation between Ferrari NV and Renault SA

Given the investment horizon of 90 days Ferrari NV is expected to under-perform the Renault SA. But the stock apears to be less risky and, when comparing its historical volatility, Ferrari NV is 1.21 times less risky than Renault SA. The stock trades about -0.02 of its potential returns per unit of risk. The Renault SA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  863.00  in Renault SA on September 14, 2024 and sell it today you would earn a total of  58.00  from holding Renault SA or generate 6.72% return on investment over 90 days.

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

Ferrari NV  vs.  Renault SA

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ferrari NV is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Renault SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Renault SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Renault SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ferrari NV and Renault SA

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

The idea behind Ferrari NV and Renault 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.