Correlation Between Alfa Laval and Atlas Copco

Can any of the company-specific risk be diversified away by investing in both Alfa Laval and Atlas Copco 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 Atlas Copco 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 Atlas Copco AB, you can compare the effects of market volatilities on Alfa Laval and Atlas Copco 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 Atlas Copco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfa Laval and Atlas Copco.

Diversification Opportunities for Alfa Laval and Atlas Copco

0.88

Correlation Coefficient

Alfa Laval  Atlas Copco

Very poor diversification

The 3 months correlation between Alfa and Atlas is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Laval AB and Atlas Copco AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco AB 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 Atlas Copco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlas Copco AB has no effect on the direction of Alfa Laval i.e., Alfa Laval and Atlas Copco go up and down completely randomly.

Pair Corralation between Alfa Laval and Atlas Copco

Assuming the 90 days horizon Alfa Laval AB is expected to generate 0.85 times more return on investment than Atlas Copco. However, Alfa Laval AB is 1.18 times less risky than Atlas Copco. It trades about 0.02 of its potential returns per unit of risk. Atlas Copco AB is currently generating about -0.07 per unit of risk. If you would invest  4,313  in Alfa Laval AB on September 4, 2024 and sell it today you would earn a total of  38.00  from holding Alfa Laval AB or generate 0.88% return on investment over 90 days.

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

Alfa Laval AB  vs.  Atlas Copco AB

Alfa Laval AB

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Laval AB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Alfa Laval is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Atlas Copco AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Atlas Copco AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Alfa Laval and Atlas Copco

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

The idea behind Alfa Laval AB and Atlas Copco AB 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.