Correlation Between Safran SA and Singapore Technologies

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

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

Diversification Opportunities for Safran SA and Singapore Technologies

0.4

Correlation Coefficient

Safran SA  Singapore Technologies

Very weak diversification

The 3 months correlation between Safran and Singapore is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Safran SA and Singapore Technologies Enginee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore Technologies and Safran 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 Safran SA are associated (or correlated) with Singapore Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Technologies has no effect on the direction of Safran SA i.e., Safran SA and Singapore Technologies go up and down completely randomly.

Pair Corralation between Safran SA and Singapore Technologies

Assuming the 90 days horizon Safran SA is expected to generate 2.09 times less return on investment than Singapore Technologies. But when comparing it to its historical volatility, Safran SA is 1.24 times less risky than Singapore Technologies. It trades about 0.05 of its potential returns per unit of risk. Singapore Technologies Engineering is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  295.00  in Singapore Technologies Engineering on August 31, 2024 and sell it today you would earn a total of  36.00  from holding Singapore Technologies Engineering or generate 12.2% return on investment over 90 days.

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

Safran SA  vs.  Singapore Technologies Enginee

Safran SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Safran SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Safran SA may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Singapore Technologies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Singapore Technologies Engineering are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, Singapore Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Safran SA and Singapore Technologies

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

The idea behind Safran SA and Singapore Technologies Engineering 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.