Correlation Between Alfa Laval and Sodexo PK

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

Diversification Opportunities for Alfa Laval and Sodexo PK

-0.24

Correlation Coefficient

Alfa Laval  Sodexo PK

Very good diversification

The 3 months correlation between Alfa and Sodexo is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Laval AB and Sodexo PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sodexo PK 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 Sodexo PK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sodexo PK has no effect on the direction of Alfa Laval i.e., Alfa Laval and Sodexo PK go up and down completely randomly.

Pair Corralation between Alfa Laval and Sodexo PK

Assuming the 90 days horizon Alfa Laval AB is expected to generate 0.53 times more return on investment than Sodexo PK. However, Alfa Laval AB is 1.87 times less risky than Sodexo PK. It trades about 0.09 of its potential returns per unit of risk. Sodexo PK is currently generating about -0.13 per unit of risk. If you would invest  4,209  in Alfa Laval AB on December 28, 2024 and sell it today you would earn a total of  298.00  from holding Alfa Laval AB or generate 7.08% 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.  Sodexo PK

Alfa Laval AB

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Laval AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Alfa Laval may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sodexo PK

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sodexo PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Alfa Laval and Sodexo PK

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

The idea behind Alfa Laval AB and Sodexo PK 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.