Correlation Between Alfa Laval and Secom Co

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

Diversification Opportunities for Alfa Laval and Secom Co

0.65

Correlation Coefficient

Alfa Laval  Secom Co

Poor diversification

The 3 months correlation between Alfa and Secom is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Laval AB and Secom Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Secom 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 Secom Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Secom Co has no effect on the direction of Alfa Laval i.e., Alfa Laval and Secom Co go up and down completely randomly.

Pair Corralation between Alfa Laval and Secom Co

Assuming the 90 days horizon Alfa Laval AB is expected to generate 1.3 times more return on investment than Secom Co. However, Alfa Laval is 1.3 times more volatile than Secom Co Ltd. It trades about 0.08 of its potential returns per unit of risk. Secom Co Ltd is currently generating about 0.04 per unit of risk. If you would invest  4,212  in Alfa Laval AB on December 27, 2024 and sell it today you would earn a total of  295.00  from holding Alfa Laval AB or generate 7.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Alfa Laval AB  vs.  Secom Co Ltd

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.

Secom Co

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Secom Co Ltd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Secom Co is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alfa Laval and Secom Co

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

The idea behind Alfa Laval AB and Secom 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.