Correlation Between Epiroc AB and Modern Times

Can any of the company-specific risk be diversified away by investing in both Epiroc AB and Modern Times 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 Epiroc AB and Modern Times into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Epiroc AB and Modern Times

-0.49

Correlation Coefficient

Epiroc AB  Modern Times

Very good diversification

The 3 months correlation between Epiroc and Modern is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Epiroc AB and Modern Times Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modern Times Group and Epiroc AB 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 Epiroc AB are associated (or correlated) with Modern Times. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modern Times Group has no effect on the direction of Epiroc AB i.e., Epiroc AB and Modern Times go up and down completely randomly.

Pair Corralation between Epiroc AB and Modern Times

Assuming the 90 days trading horizon Epiroc AB is expected to under-perform the Modern Times. In addition to that, Epiroc AB is 1.31 times more volatile than Modern Times Group. It trades about -0.02 of its total potential returns per unit of risk. Modern Times Group is currently generating about 0.16 per unit of volatility. If you would invest  9,100  in Modern Times Group on September 23, 2024 and sell it today you would earn a total of  350.00  from holding Modern Times Group or generate 3.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Epiroc AB  vs.  Modern Times Group

Epiroc AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Modern Times Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Modern Times Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Modern Times unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Epiroc AB and Modern Times

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

The idea behind Epiroc AB and Modern Times Group 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.