Correlation Between Essity AB and Hexagon AB

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

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

Diversification Opportunities for Essity AB and Hexagon AB

0.3

Correlation Coefficient

Essity AB  Hexagon AB

Weak diversification

The 3 months correlation between Essity and Hexagon is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Essity AB and Hexagon AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hexagon AB and Essity 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 Essity AB are associated (or correlated) with Hexagon AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hexagon AB has no effect on the direction of Essity AB i.e., Essity AB and Hexagon AB go up and down completely randomly.

Pair Corralation between Essity AB and Hexagon AB

Assuming the 90 days trading horizon Essity AB is expected to generate 0.69 times more return on investment than Hexagon AB. However, Essity AB is 1.45 times less risky than Hexagon AB. It trades about 0.06 of its potential returns per unit of risk. Hexagon AB is currently generating about -0.02 per unit of risk. If you would invest  25,577  in Essity AB on October 5, 2024 and sell it today you would earn a total of  4,123  from holding Essity AB or generate 16.12% return on investment over 90 days.

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

Essity AB  vs.  Hexagon AB

Essity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essity AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Essity AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hexagon AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hexagon AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hexagon AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Essity AB and Hexagon AB

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

The idea behind Essity AB and Hexagon AB 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.