Correlation Between Veolia Environnement and Renewi Plc

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

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

Diversification Opportunities for Veolia Environnement and Renewi Plc

0.61

Correlation Coefficient

Veolia Environnement  Renewi Plc

Poor diversification

The 3 months correlation between Veolia and Renewi is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Veolia Environnement SA and Renewi plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renewi plc and Veolia Environnement 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 Veolia Environnement SA are associated (or correlated) with Renewi Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renewi plc has no effect on the direction of Veolia Environnement i.e., Veolia Environnement and Renewi Plc go up and down completely randomly.

Pair Corralation between Veolia Environnement and Renewi Plc

Assuming the 90 days horizon Veolia Environnement SA is expected to generate 1.25 times more return on investment than Renewi Plc. However, Veolia Environnement is 1.25 times more volatile than Renewi plc. It trades about 0.07 of its potential returns per unit of risk. Renewi plc is currently generating about -0.04 per unit of risk. If you would invest  1,072  in Veolia Environnement SA on January 24, 2024 and sell it today you would earn a total of  466.00  from holding Veolia Environnement SA or generate 43.47% return on investment over 90 days.

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

Veolia Environnement SA  vs.  Renewi plc

Veolia Environnement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veolia Environnement SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Veolia Environnement is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Renewi plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renewi plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Veolia Environnement and Renewi Plc

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

The idea behind Veolia Environnement SA and Renewi plc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.