Correlation Between KABE Group and Cavotec SA

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

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

Diversification Opportunities for KABE Group and Cavotec SA

-0.07

Correlation Coefficient

KABE Group  Cavotec SA

Good diversification

The 3 months correlation between KABE and Cavotec is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding KABE Group AB and Cavotec SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavotec SA and KABE Group 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 KABE Group AB 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 KABE Group i.e., KABE Group and Cavotec SA go up and down completely randomly.

Pair Corralation between KABE Group and Cavotec SA

Assuming the 90 days trading horizon KABE Group AB is expected to generate 0.43 times more return on investment than Cavotec SA. However, KABE Group AB is 2.34 times less risky than Cavotec SA. It trades about 0.23 of its potential returns per unit of risk. Cavotec SA is currently generating about -0.01 per unit of risk. If you would invest  29,500  in KABE Group AB on October 8, 2024 and sell it today you would earn a total of  1,000.00  from holding KABE Group AB or generate 3.39% return on investment over 90 days.

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

KABE Group AB  vs.  Cavotec SA

KABE Group AB

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KABE Group AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, KABE Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the 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 KABE Group and Cavotec SA

The main advantage of trading using opposite KABE Group and Cavotec SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KABE Group 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 KABE Group AB 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.