Correlation Between Atlas Copco and IZafe Group

Can any of the company-specific risk be diversified away by investing in both Atlas Copco and IZafe Group 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 Atlas Copco and IZafe Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Atlas Copco AB and iZafe Group AB, you can compare the effects of market volatilities on Atlas Copco and IZafe Group 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 Atlas Copco with a short position of IZafe Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Atlas Copco and IZafe Group.

Diversification Opportunities for Atlas Copco and IZafe Group

0.61

Correlation Coefficient

Atlas Copco  IZafe Group

Poor diversification

The 3 months correlation between Atlas and IZafe is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Copco AB and iZafe Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iZafe Group AB and Atlas Copco 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 Atlas Copco AB are associated (or correlated) with IZafe Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iZafe Group AB has no effect on the direction of Atlas Copco i.e., Atlas Copco and IZafe Group go up and down completely randomly.

Pair Corralation between Atlas Copco and IZafe Group

Assuming the 90 days trading horizon Atlas Copco AB is expected to under-perform the IZafe Group. But the stock apears to be less risky and, when comparing its historical volatility, Atlas Copco AB is 2.15 times less risky than IZafe Group. The stock trades about -0.03 of its potential returns per unit of risk. The iZafe Group AB is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  22.00  in iZafe Group AB on December 4, 2024 and sell it today you would earn a total of  5.00  from holding iZafe Group AB or generate 22.73% return on investment over 90 days.

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

Atlas Copco AB  vs.  iZafe Group AB

Atlas Copco AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days Atlas Copco AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Atlas Copco is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

iZafe Group AB

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iZafe Group AB are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, IZafe Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Atlas Copco and IZafe Group

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

The idea behind Atlas Copco AB and iZafe Group 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.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.