Correlation Between Societe Generale and Commerzbank

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

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

Diversification Opportunities for Societe Generale and Commerzbank

0.66

Correlation Coefficient

Societe Generale  Commerzbank

Poor diversification

The 3 months correlation between Societe and Commerzbank is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Societe Generale ADR and Commerzbank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerzbank AG and Societe Generale 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 Societe Generale ADR are associated (or correlated) with Commerzbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerzbank AG has no effect on the direction of Societe Generale i.e., Societe Generale and Commerzbank go up and down completely randomly.

Pair Corralation between Societe Generale and Commerzbank

Assuming the 90 days horizon Societe Generale ADR is expected to generate 0.65 times more return on investment than Commerzbank. However, Societe Generale ADR is 1.55 times less risky than Commerzbank. It trades about 0.09 of its potential returns per unit of risk. Commerzbank AG is currently generating about 0.05 per unit of risk. If you would invest  480.00  in Societe Generale ADR on September 4, 2024 and sell it today you would earn a total of  55.00  from holding Societe Generale ADR or generate 11.46% return on investment over 90 days.

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

Societe Generale ADR  vs.  Commerzbank AG

Societe Generale ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Societe Generale ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Societe Generale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Commerzbank AG

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Commerzbank AG are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, Commerzbank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Societe Generale and Commerzbank

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

The idea behind Societe Generale ADR and Commerzbank AG 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.