Correlation Between Laboratory and Koninklijke Philips

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

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

Diversification Opportunities for Laboratory and Koninklijke Philips

-0.79

Correlation Coefficient

Laboratory  Koninklijke Philips

Pay attention - limited upside

The 3 months correlation between Laboratory and Koninklijke is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Laboratory of and Koninklijke Philips NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke Philips and Laboratory 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 Laboratory of are associated (or correlated) with Koninklijke Philips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke Philips has no effect on the direction of Laboratory i.e., Laboratory and Koninklijke Philips go up and down completely randomly.

Pair Corralation between Laboratory and Koninklijke Philips

Allowing for the 90-day total investment horizon Laboratory is expected to generate 3.98 times less return on investment than Koninklijke Philips. But when comparing it to its historical volatility, Laboratory of is 1.82 times less risky than Koninklijke Philips. It trades about 0.03 of its potential returns per unit of risk. Koninklijke Philips NV is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,525  in Koninklijke Philips NV on September 27, 2024 and sell it today you would earn a total of  1,023  from holding Koninklijke Philips NV or generate 67.08% return on investment over 90 days.

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

Laboratory of  vs.  Koninklijke Philips NV

Laboratory

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Laboratory of are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Laboratory is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Koninklijke Philips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Koninklijke Philips NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Laboratory and Koninklijke Philips

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

The idea behind Laboratory of and Koninklijke Philips NV 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.