Correlation Between Longvie SA and Naturgy BAN

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

By analyzing existing cross correlation between Longvie SA and Naturgy BAN SA, you can compare the effects of market volatilities on Longvie SA and Naturgy BAN 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 Longvie SA with a short position of Naturgy BAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longvie SA and Naturgy BAN.

Diversification Opportunities for Longvie SA and Naturgy BAN

0.45

Correlation Coefficient

Longvie SA  Naturgy BAN

Very weak diversification

The 3 months correlation between Longvie and Naturgy is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Longvie SA and Naturgy BAN SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naturgy BAN SA and Longvie 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 Longvie SA are associated (or correlated) with Naturgy BAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naturgy BAN SA has no effect on the direction of Longvie SA i.e., Longvie SA and Naturgy BAN go up and down completely randomly.

Pair Corralation between Longvie SA and Naturgy BAN

Assuming the 90 days trading horizon Longvie SA is expected to under-perform the Naturgy BAN. But the stock apears to be less risky and, when comparing its historical volatility, Longvie SA is 1.08 times less risky than Naturgy BAN. The stock trades about -0.01 of its potential returns per unit of risk. The Naturgy BAN SA is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  125,000  in Naturgy BAN SA on September 15, 2024 and sell it today you would earn a total of  97,000  from holding Naturgy BAN SA or generate 77.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Longvie SA  vs.  Naturgy BAN SA

Longvie SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Longvie SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Longvie SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Naturgy BAN SA

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Naturgy BAN SA are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Naturgy BAN sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Longvie SA and Naturgy BAN

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

The idea behind Longvie SA and Naturgy BAN 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.