Correlation Between Esso SAF and Les Docks

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

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

Diversification Opportunities for Esso SAF and Les Docks

0.91

Correlation Coefficient

Esso SAF  Les Docks

Almost no diversification

The 3 months correlation between Esso and Les is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Esso SAF and Les Docks des in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Les Docks des and Esso SAF 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 Esso SAF are associated (or correlated) with Les Docks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Les Docks des has no effect on the direction of Esso SAF i.e., Esso SAF and Les Docks go up and down completely randomly.

Pair Corralation between Esso SAF and Les Docks

Assuming the 90 days horizon Esso SAF is expected to generate 1.33 times more return on investment than Les Docks. However, Esso SAF is 1.33 times more volatile than Les Docks des. It trades about 0.17 of its potential returns per unit of risk. Les Docks des is currently generating about 0.05 per unit of risk. If you would invest  4,975  in Esso SAF on February 14, 2024 and sell it today you would earn a total of  13,785  from holding Esso SAF or generate 277.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.97%
Values	Daily Returns

Esso SAF  vs.  Les Docks des

Esso SAF

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Esso SAF are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Esso SAF sustained solid returns over the last few months and may actually be approaching a breakup point.

Les Docks des

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Les Docks des are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Les Docks may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Esso SAF and Les Docks

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

The idea behind Esso SAF and Les Docks des 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 Anywhere module to track or share privately all of your investments from the convenience of any device.