Correlation Between Alfa Laval and THK Co

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

By analyzing existing cross correlation between Alfa Laval AB and THK Co Ltd, you can compare the effects of market volatilities on Alfa Laval and THK Co 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 Alfa Laval with a short position of THK Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfa Laval and THK Co.

Diversification Opportunities for Alfa Laval and THK Co

-0.1

Correlation Coefficient

Alfa Laval  THK Co

Good diversification

The 3 months correlation between Alfa and THK is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Laval AB and THK Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THK Co and Alfa Laval 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 Alfa Laval AB are associated (or correlated) with THK Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THK Co has no effect on the direction of Alfa Laval i.e., Alfa Laval and THK Co go up and down completely randomly.

Pair Corralation between Alfa Laval and THK Co

Assuming the 90 days horizon Alfa Laval AB is expected to under-perform the THK Co. But the pink sheet apears to be less risky and, when comparing its historical volatility, Alfa Laval AB is 3.29 times less risky than THK Co. The pink sheet trades about -0.22 of its potential returns per unit of risk. The THK Co Ltd is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,083  in THK Co Ltd on September 14, 2024 and sell it today you would earn a total of  102.00  from holding THK Co Ltd or generate 9.42% return on investment over 90 days.

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

Alfa Laval AB  vs.  THK Co Ltd

Alfa Laval AB

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Laval AB are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Alfa Laval is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

THK Co

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in THK Co Ltd are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, THK Co showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfa Laval and THK Co

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

The idea behind Alfa Laval AB and THK Co Ltd 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.