Correlation Between Atlas Copco and AstraZeneca PLC

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

Diversification Opportunities for Atlas Copco and AstraZeneca PLC

0.66

Correlation Coefficient

Atlas Copco  AstraZeneca PLC

Poor diversification

The 3 months correlation between Atlas and AstraZeneca is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Copco AB and AstraZeneca PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AstraZeneca PLC 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 AstraZeneca PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AstraZeneca PLC has no effect on the direction of Atlas Copco i.e., Atlas Copco and AstraZeneca PLC go up and down completely randomly.

Pair Corralation between Atlas Copco and AstraZeneca PLC

Assuming the 90 days trading horizon Atlas Copco is expected to generate 1.63 times less return on investment than AstraZeneca PLC. But when comparing it to its historical volatility, Atlas Copco AB is 1.01 times less risky than AstraZeneca PLC. It trades about 0.08 of its potential returns per unit of risk. AstraZeneca PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  144,972  in AstraZeneca PLC on November 29, 2024 and sell it today you would earn a total of  15,928  from holding AstraZeneca PLC or generate 10.99% 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.  AstraZeneca PLC

Atlas Copco AB

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 6 (%) 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.

AstraZeneca PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AstraZeneca PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, AstraZeneca PLC may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Atlas Copco and AstraZeneca PLC

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

The idea behind Atlas Copco AB and AstraZeneca PLC 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.