Correlation Between IAR Systems and Cavotec SA

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

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

Diversification Opportunities for IAR Systems and Cavotec SA

0.59

Correlation Coefficient

IAR Systems  Cavotec SA

Very weak diversification

The 3 months correlation between IAR and Cavotec is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding IAR Systems Group and Cavotec SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavotec SA and IAR Systems 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 IAR Systems Group are associated (or correlated) with Cavotec SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cavotec SA has no effect on the direction of IAR Systems i.e., IAR Systems and Cavotec SA go up and down completely randomly.

Pair Corralation between IAR Systems and Cavotec SA

Assuming the 90 days trading horizon IAR Systems Group is expected to under-perform the Cavotec SA. But the stock apears to be less risky and, when comparing its historical volatility, IAR Systems Group is 1.11 times less risky than Cavotec SA. The stock trades about -0.58 of its potential returns per unit of risk. The Cavotec SA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,785  in Cavotec SA on October 8, 2024 and sell it today you would lose (15.00) from holding Cavotec SA or give up 0.84% of portfolio value over 90 days.

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

IAR Systems Group  vs.  Cavotec SA

IAR Systems Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IAR Systems Group 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 February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Cavotec SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IAR Systems and Cavotec SA

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

The idea behind IAR Systems Group and Cavotec SA 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.