Correlation Between SANOFI S and Paramount Communications

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

By analyzing existing cross correlation between SANOFI S HEALTHC and Paramount Communications Limited, you can compare the effects of market volatilities on SANOFI S and Paramount Communications 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 SANOFI S with a short position of Paramount Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of SANOFI S and Paramount Communications.

Diversification Opportunities for SANOFI S and Paramount Communications

0.55

Correlation Coefficient

SANOFI S  Paramount Communications

Very weak diversification

The 3 months correlation between SANOFI and Paramount is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding SANOFI S HEALTHC and Paramount Communications Limit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Communications and SANOFI S 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 SANOFI S HEALTHC are associated (or correlated) with Paramount Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Communications has no effect on the direction of SANOFI S i.e., SANOFI S and Paramount Communications go up and down completely randomly.

Pair Corralation between SANOFI S and Paramount Communications

Assuming the 90 days trading horizon SANOFI S HEALTHC is expected to generate 0.69 times more return on investment than Paramount Communications. However, SANOFI S HEALTHC is 1.44 times less risky than Paramount Communications. It trades about -0.01 of its potential returns per unit of risk. Paramount Communications Limited is currently generating about -0.14 per unit of risk. If you would invest  490,350  in SANOFI S HEALTHC on September 4, 2024 and sell it today you would lose (10,080) from holding SANOFI S HEALTHC or give up 2.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	88.89%
Values	Daily Returns

SANOFI S HEALTHC  vs.  Paramount Communications Limit

SANOFI S HEALTHC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Paramount Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential 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 SANOFI S and Paramount Communications

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

The idea behind SANOFI S HEALTHC and Paramount Communications Limited 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.