Correlation Between Epiroc AB and SMC Corp

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

By analyzing existing cross correlation between Epiroc AB and SMC Corp, you can compare the effects of market volatilities on Epiroc AB and SMC Corp 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 SMC Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Epiroc AB and SMC Corp.

Diversification Opportunities for Epiroc AB and SMC Corp

-0.16

Correlation Coefficient

Epiroc AB  SMC Corp

Good diversification

The 3 months correlation between Epiroc and SMC is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Epiroc AB and SMC Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Corp 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 SMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Corp has no effect on the direction of Epiroc AB i.e., Epiroc AB and SMC Corp go up and down completely randomly.

Pair Corralation between Epiroc AB and SMC Corp

Assuming the 90 days horizon Epiroc AB is expected to generate 0.73 times more return on investment than SMC Corp. However, Epiroc AB is 1.38 times less risky than SMC Corp. It trades about 0.05 of its potential returns per unit of risk. SMC Corp is currently generating about 0.01 per unit of risk. If you would invest  2,010  in Epiroc AB on December 28, 2024 and sell it today you would earn a total of  36.00  from holding Epiroc AB or generate 1.79% return on investment over 90 days.

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

Epiroc AB  vs.  SMC Corp

Epiroc AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Epiroc AB are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward-looking signals, Epiroc AB showed solid returns over the last few months and may actually be approaching a breakup point.

SMC Corp

Risk-Adjusted Performance

Weak

Over the last 90 days SMC Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, SMC Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Epiroc AB and SMC Corp

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

The idea behind Epiroc AB and SMC Corp 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.