Correlation Between Compagnie and Sodexo SA

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

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

Diversification Opportunities for Compagnie and Sodexo SA

0.25

Correlation Coefficient

Compagnie  Sodexo SA

Modest diversification

The 3 months correlation between Compagnie and Sodexo is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Saint Gobain and Sodexo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sodexo SA and Compagnie 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 Compagnie de Saint Gobain are associated (or correlated) with Sodexo SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sodexo SA has no effect on the direction of Compagnie i.e., Compagnie and Sodexo SA go up and down completely randomly.

Pair Corralation between Compagnie and Sodexo SA

Assuming the 90 days trading horizon Compagnie de Saint Gobain is expected to generate 1.21 times more return on investment than Sodexo SA. However, Compagnie is 1.21 times more volatile than Sodexo SA. It trades about 0.1 of its potential returns per unit of risk. Sodexo SA is currently generating about 0.06 per unit of risk. If you would invest  5,607  in Compagnie de Saint Gobain on August 30, 2024 and sell it today you would earn a total of  2,911  from holding Compagnie de Saint Gobain or generate 51.92% return on investment over 90 days.

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

Compagnie de Saint Gobain  vs.  Sodexo SA

Compagnie de Saint

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Saint Gobain are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Compagnie may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Sodexo SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Compagnie and Sodexo SA

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

The idea behind Compagnie de Saint Gobain and Sodexo 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.