Correlation Between Kone Oyj and Smiths Group

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

By analyzing existing cross correlation between Kone Oyj ADR and Smiths Group Plc, you can compare the effects of market volatilities on Kone Oyj and Smiths Group 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 Kone Oyj with a short position of Smiths Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kone Oyj and Smiths Group.

Diversification Opportunities for Kone Oyj and Smiths Group

-0.02

Correlation Coefficient

Kone Oyj  Smiths Group

Good diversification

The 3 months correlation between Kone and Smiths is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Kone Oyj ADR and Smiths Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smiths Group Plc and Kone Oyj 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 Kone Oyj ADR are associated (or correlated) with Smiths Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smiths Group Plc has no effect on the direction of Kone Oyj i.e., Kone Oyj and Smiths Group go up and down completely randomly.

Pair Corralation between Kone Oyj and Smiths Group

Assuming the 90 days horizon Kone Oyj ADR is expected to under-perform the Smiths Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Kone Oyj ADR is 1.45 times less risky than Smiths Group. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Smiths Group Plc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,293  in Smiths Group Plc on August 31, 2024 and sell it today you would earn a total of  7.00  from holding Smiths Group Plc or generate 0.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Kone Oyj ADR  vs.  Smiths Group Plc

Kone Oyj ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kone Oyj ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, Kone Oyj is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Smiths Group Plc

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smiths Group Plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Smiths Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kone Oyj and Smiths Group

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

The idea behind Kone Oyj ADR and Smiths Group Plc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.