Correlation Between ALK Abell and NKT AS

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

By analyzing existing cross correlation between ALK Abell AS and NKT AS, you can compare the effects of market volatilities on ALK Abell and NKT AS 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 ALK Abell with a short position of NKT AS. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALK Abell and NKT AS.

Diversification Opportunities for ALK Abell and NKT AS

-0.16

Correlation Coefficient

ALK Abell  NKT AS

Good diversification

The 3 months correlation between ALK and NKT is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding ALK Abell AS and NKT AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NKT AS and ALK Abell 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 ALK Abell AS are associated (or correlated) with NKT AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NKT AS has no effect on the direction of ALK Abell i.e., ALK Abell and NKT AS go up and down completely randomly.

Pair Corralation between ALK Abell and NKT AS

Assuming the 90 days trading horizon ALK Abell AS is expected to under-perform the NKT AS. But the stock apears to be less risky and, when comparing its historical volatility, ALK Abell AS is 1.12 times less risky than NKT AS. The stock trades about -0.09 of its potential returns per unit of risk. The NKT AS is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  51,450  in NKT AS on December 28, 2024 and sell it today you would lose (2,570) from holding NKT AS or give up 5.0% of portfolio value over 90 days.

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

ALK Abell AS  vs.  NKT AS

ALK Abell AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALK Abell AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NKT AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days NKT AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, NKT AS is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ALK Abell and NKT AS

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

The idea behind ALK Abell AS and NKT AS 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.