Correlation Between Colas SA and Leonardo DRS

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

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

Diversification Opportunities for Colas SA and Leonardo DRS

0.69

Correlation Coefficient

Colas SA  Leonardo DRS

Poor diversification

The 3 months correlation between Colas and Leonardo is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Colas SA and Leonardo DRS Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leonardo DRS Common and Colas 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 Colas SA are associated (or correlated) with Leonardo DRS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leonardo DRS Common has no effect on the direction of Colas SA i.e., Colas SA and Leonardo DRS go up and down completely randomly.

Pair Corralation between Colas SA and Leonardo DRS

Allowing for the 90-day total investment horizon Colas SA is expected to under-perform the Leonardo DRS. But the stock apears to be less risky and, when comparing its historical volatility, Colas SA is 1.49 times less risky than Leonardo DRS. The stock trades about -0.01 of its potential returns per unit of risk. The Leonardo DRS Common is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,530  in Leonardo DRS Common on January 25, 2024 and sell it today you would earn a total of  601.00  from holding Leonardo DRS Common or generate 39.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	37.25%
Values	Daily Returns

Colas SA  vs.  Leonardo DRS Common

Colas SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Colas SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Colas SA is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Leonardo DRS Common

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Leonardo DRS Common are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Leonardo DRS may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Colas SA and Leonardo DRS

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

The idea behind Colas SA and Leonardo DRS Common 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.