Correlation Between TotalEnergies and Shell PLC

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

By analyzing existing cross correlation between TotalEnergies SE ADR and Shell PLC, you can compare the effects of market volatilities on TotalEnergies and Shell 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 TotalEnergies with a short position of Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of TotalEnergies and Shell PLC.

Diversification Opportunities for TotalEnergies and Shell PLC

0.93

Correlation Coefficient

TotalEnergies  Shell PLC

Almost no diversification

The 3 months correlation between TotalEnergies and Shell is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding TotalEnergies SE ADR and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC and TotalEnergies 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 TotalEnergies SE ADR are associated (or correlated) with Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of TotalEnergies i.e., TotalEnergies and Shell PLC go up and down completely randomly.

Pair Corralation between TotalEnergies and Shell PLC

Considering the 90-day investment horizon TotalEnergies is expected to generate 2.27 times less return on investment than Shell PLC. But when comparing it to its historical volatility, TotalEnergies SE ADR is 3.05 times less risky than Shell PLC. It trades about 0.33 of its potential returns per unit of risk. Shell PLC is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,150  in Shell PLC on January 31, 2024 and sell it today you would earn a total of  483.00  from holding Shell PLC or generate 15.33% return on investment over 90 days.

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

TotalEnergies SE ADR  vs.  Shell PLC

TotalEnergies SE ADR

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TotalEnergies SE ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, TotalEnergies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Shell PLC

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Shell PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TotalEnergies and Shell PLC

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

The idea behind TotalEnergies SE ADR and Shell 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.