Correlation Between Atlas Copco and NGK Insulators

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

Diversification Opportunities for Atlas Copco and NGK Insulators

0.43

Correlation Coefficient

Atlas Copco  NGK Insulators

Very weak diversification

The 3 months correlation between Atlas and NGK is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Copco AB and NGK Insulators in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGK Insulators 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 NGK Insulators. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGK Insulators has no effect on the direction of Atlas Copco i.e., Atlas Copco and NGK Insulators go up and down completely randomly.

Pair Corralation between Atlas Copco and NGK Insulators

Assuming the 90 days horizon Atlas Copco is expected to generate 6.63 times less return on investment than NGK Insulators. But when comparing it to its historical volatility, Atlas Copco AB is 1.14 times less risky than NGK Insulators. It trades about 0.02 of its potential returns per unit of risk. NGK Insulators is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,153  in NGK Insulators on September 14, 2024 and sell it today you would earn a total of  137.00  from holding NGK Insulators or generate 11.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Atlas Copco AB  vs.  NGK Insulators

Atlas Copco AB

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Atlas Copco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

NGK Insulators

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NGK Insulators are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating forward indicators, NGK Insulators reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Atlas Copco and NGK Insulators

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

The idea behind Atlas Copco AB and NGK Insulators 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 Transaction History module to view history of all your transactions and understand their impact on performance.