Correlation Between Atlas Copco and AB SKF

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

Diversification Opportunities for Atlas Copco and AB SKF

0.83

Correlation Coefficient

Atlas Copco  AB SKF

Very poor diversification

The 3 months correlation between Atlas and SKF-B is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Copco AB and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF 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 AB SKF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB SKF has no effect on the direction of Atlas Copco i.e., Atlas Copco and AB SKF go up and down completely randomly.

Pair Corralation between Atlas Copco and AB SKF

Assuming the 90 days trading horizon Atlas Copco is expected to generate 1.45 times less return on investment than AB SKF. But when comparing it to its historical volatility, Atlas Copco AB is 1.17 times less risky than AB SKF. It trades about 0.09 of its potential returns per unit of risk. AB SKF is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  20,950  in AB SKF on November 29, 2024 and sell it today you would earn a total of  2,120  from holding AB SKF or generate 10.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

Atlas Copco AB  vs.  AB SKF

Atlas Copco AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Atlas Copco may actually be approaching a critical reversion point that can send shares even higher in March 2025.

AB SKF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, AB SKF may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Atlas Copco and AB SKF

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

The idea behind Atlas Copco AB and AB SKF 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.