Correlation Between Atlas Copco and Cavotec SA

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

Diversification Opportunities for Atlas Copco and Cavotec SA

0.75

Correlation Coefficient

Atlas Copco  Cavotec SA

Poor diversification

The 3 months correlation between Atlas and Cavotec is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Copco AB and Cavotec SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavotec SA 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 Cavotec SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cavotec SA has no effect on the direction of Atlas Copco i.e., Atlas Copco and Cavotec SA go up and down completely randomly.

Pair Corralation between Atlas Copco and Cavotec SA

Assuming the 90 days trading horizon Atlas Copco is expected to generate 2.45 times less return on investment than Cavotec SA. But when comparing it to its historical volatility, Atlas Copco AB is 1.52 times less risky than Cavotec SA. It trades about 0.03 of its potential returns per unit of risk. Cavotec SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,450  in Cavotec SA on October 5, 2024 and sell it today you would earn a total of  320.00  from holding Cavotec SA or generate 22.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.62%
Values	Daily Returns

Atlas Copco AB  vs.  Cavotec SA

Atlas Copco AB

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Cavotec SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cavotec SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Cavotec SA is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Atlas Copco and Cavotec SA

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

The idea behind Atlas Copco AB and Cavotec SA 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.