Correlation Between Eramet SA and Alstom SA
Can any of the company-specific risk be diversified away by investing in both Eramet SA and Alstom 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 Eramet SA and Alstom SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eramet SA and Alstom SA, you can compare the effects of market volatilities on Eramet SA and Alstom 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 Eramet SA with a short position of Alstom SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eramet SA and Alstom SA.
Diversification Opportunities for Eramet SA and Alstom SA
Excellent diversification
The 3 months correlation between Eramet and Alstom is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Eramet SA and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA and Eramet 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 Eramet SA are associated (or correlated) with Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of Eramet SA i.e., Eramet SA and Alstom SA go up and down completely randomly.
Pair Corralation between Eramet SA and Alstom SA
Assuming the 90 days trading horizon Eramet SA is expected to under-perform the Alstom SA. But the stock apears to be less risky and, when comparing its historical volatility, Eramet SA is 1.45 times less risky than Alstom SA. The stock trades about -0.05 of its potential returns per unit of risk. The Alstom SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. 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 |
Eramet SA vs. Alstom SA
Performance |
| Timeline |
| Eramet SA |
| Alstom SA |
Eramet SA and Alstom SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eramet SA and Alstom SA
The main advantage of trading using opposite Eramet SA and Alstom SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eramet SA position performs unexpectedly, Alstom 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 Alstom SA will offset losses from the drop in Alstom SA's long position.The idea behind Eramet SA and Alstom 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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