Correlation Between Alstom SA and Eramet SA
Can any of the company-specific risk be diversified away by investing in both Alstom SA and Eramet 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 Alstom SA and Eramet SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alstom SA and Eramet SA, you can compare the effects of market volatilities on Alstom SA and Eramet 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 Alstom SA with a short position of Eramet SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alstom SA and Eramet SA.
Diversification Opportunities for Alstom SA and Eramet SA
Excellent diversification
The 3 months correlation between Alstom and Eramet is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Alstom SA and Eramet SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eramet SA and Alstom 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 Alstom SA are associated (or correlated) with Eramet SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eramet SA has no effect on the direction of Alstom SA i.e., Alstom SA and Eramet SA go up and down completely randomly.
Pair Corralation between Alstom SA and Eramet SA
Assuming the 90 days trading horizon Alstom SA is expected to generate 1.45 times more return on investment than Eramet SA. However, Alstom SA is 1.45 times more volatile than Eramet SA. It trades about 0.08 of its potential returns per unit of risk. Eramet SA is currently generating about -0.05 per unit of risk. If you would invest 2,029 in Alstom SA on August 27, 2024 and sell it today you would earn a total of 87.00 from holding Alstom SA or generate 4.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alstom SA vs. Eramet SA
Performance |
| Timeline |
| Alstom SA |
| Eramet SA |
Alstom SA and Eramet SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alstom SA and Eramet SA
The main advantage of trading using opposite Alstom SA and Eramet SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alstom SA position performs unexpectedly, Eramet 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 Eramet SA will offset losses from the drop in Eramet SA's long position.The idea behind Alstom SA and Eramet 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.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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