Correlation Between Renault SA and Valeo SA

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

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

Diversification Opportunities for Renault SA and Valeo SA

-0.26

Correlation Coefficient

Renault SA  Valeo SA

Very good diversification

The 3 months correlation between Renault and Valeo is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Renault SA and Valeo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valeo SA and Renault 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 Renault SA are associated (or correlated) with Valeo SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valeo SA has no effect on the direction of Renault SA i.e., Renault SA and Valeo SA go up and down completely randomly.

Pair Corralation between Renault SA and Valeo SA

Assuming the 90 days trading horizon Renault SA is expected to generate 0.62 times more return on investment than Valeo SA. However, Renault SA is 1.61 times less risky than Valeo SA. It trades about -0.02 of its potential returns per unit of risk. Valeo SA is currently generating about -0.08 per unit of risk. If you would invest  4,187  in Renault SA on September 3, 2024 and sell it today you would lose (134.00) from holding Renault SA or give up 3.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Renault SA  vs.  Valeo SA

Renault SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Valeo SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valeo SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Renault SA and Valeo SA

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

The idea behind Renault SA and Valeo 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.