Correlation Between Holmen AB and Axfood AB

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

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

Diversification Opportunities for Holmen AB and Axfood AB

0.68

Correlation Coefficient

Holmen AB  Axfood AB

Poor diversification

The 3 months correlation between Holmen and Axfood is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Holmen AB and Axfood AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axfood AB and Holmen 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 Holmen AB are associated (or correlated) with Axfood AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axfood AB has no effect on the direction of Holmen AB i.e., Holmen AB and Axfood AB go up and down completely randomly.

Pair Corralation between Holmen AB and Axfood AB

Assuming the 90 days trading horizon Holmen AB is expected to generate 0.67 times more return on investment than Axfood AB. However, Holmen AB is 1.5 times less risky than Axfood AB. It trades about -0.01 of its potential returns per unit of risk. Axfood AB is currently generating about -0.12 per unit of risk. If you would invest  41,660  in Holmen AB on September 3, 2024 and sell it today you would lose (580.00) from holding Holmen AB or give up 1.39% of portfolio value over 90 days.

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

Holmen AB  vs.  Axfood AB

Holmen AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Axfood AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Axfood AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Holmen AB and Axfood AB

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

The idea behind Holmen AB and Axfood 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 Transaction History module to view history of all your transactions and understand their impact on performance.