Correlation Between Kennametal and AB SKF

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

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

Diversification Opportunities for Kennametal and AB SKF

-0.48

Correlation Coefficient

Kennametal  AB SKF

Very good diversification

The 3 months correlation between Kennametal and SKFRY is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Kennametal and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF and Kennametal 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 Kennametal are associated (or correlated) with AB SKF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB SKF has no effect on the direction of Kennametal i.e., Kennametal and AB SKF go up and down completely randomly.

Pair Corralation between Kennametal and AB SKF

Considering the 90-day investment horizon Kennametal is expected to under-perform the AB SKF. But the stock apears to be less risky and, when comparing its historical volatility, Kennametal is 1.17 times less risky than AB SKF. The stock trades about -0.3 of its potential returns per unit of risk. The AB SKF is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,926  in AB SKF on November 29, 2024 and sell it today you would earn a total of  270.00  from holding AB SKF or generate 14.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Kennametal  vs.  AB SKF

Kennametal

Risk-Adjusted Performance

Very Weak

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

AB SKF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, AB SKF showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kennametal and AB SKF

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

The idea behind Kennametal and AB SKF 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.