Can any of the company-specific risk be diversified away by investing in both Icade SA and Galimmo 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 Icade SA and Galimmo SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Icade SA and Galimmo SA, you can compare the effects of market volatilities on Icade SA and Galimmo 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 Icade SA with a short position of Galimmo SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Icade SA and Galimmo SA.
Diversification Opportunities for Icade SA and Galimmo SA
The 3 months correlation between Icade and Galimmo is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Icade SA and Galimmo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galimmo SA and Icade 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 Icade SA are associated (or correlated) with Galimmo SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galimmo SA has no effect on the direction of Icade SA i.e., Icade SA and Galimmo SA go up and down completely randomly.
Assuming the 90 days trading horizon Icade SA is expected to generate 2.42 times more return on investment than Galimmo SA. However, Icade SA is 2.42 times more volatile than Galimmo SA. It trades about 0.31 of its potential returns per unit of risk. Galimmo SA is currently generating about -0.17 per unit of risk. If you would invest 2,436 in Icade SA on March 6, 2024 and sell it today you would earn a total of 462.00 from holding Icade SA or generate 18.97% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Icade SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Icade SA sustained solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Galimmo SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable primary indicators, Galimmo SA is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.