Correlation Between Epiroc AB and Techtronic Industries

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

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

Diversification Opportunities for Epiroc AB and Techtronic Industries

0.46

Correlation Coefficient

Epiroc AB  Techtronic Industries

Very weak diversification

The 3 months correlation between Epiroc and Techtronic is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Epiroc AB and Techtronic Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techtronic Industries 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 Techtronic Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techtronic Industries has no effect on the direction of Epiroc AB i.e., Epiroc AB and Techtronic Industries go up and down completely randomly.

Pair Corralation between Epiroc AB and Techtronic Industries

Assuming the 90 days horizon Epiroc AB is expected to generate 0.78 times more return on investment than Techtronic Industries. However, Epiroc AB is 1.29 times less risky than Techtronic Industries. It trades about 0.06 of its potential returns per unit of risk. Techtronic Industries Ltd is currently generating about 0.0 per unit of risk. If you would invest  1,848  in Epiroc AB on December 1, 2024 and sell it today you would earn a total of  98.00  from holding Epiroc AB or generate 5.3% return on investment over 90 days.

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

Epiroc AB  vs.  Techtronic Industries Ltd

Epiroc AB

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Epiroc AB are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking signals, Epiroc AB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Techtronic Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Techtronic Industries Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Techtronic Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Epiroc AB and Techtronic Industries

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

The idea behind Epiroc AB and Techtronic Industries Ltd 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.