Correlation Between Lifco AB and Essity AB

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

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

Diversification Opportunities for Lifco AB and Essity AB

-0.32

Correlation Coefficient

Lifco AB  Essity AB

Very good diversification

The 3 months correlation between Lifco and Essity is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lifco AB and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB and Lifco AB 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 Lifco AB are associated (or correlated) with Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of Lifco AB i.e., Lifco AB and Essity AB go up and down completely randomly.

Pair Corralation between Lifco AB and Essity AB

Assuming the 90 days trading horizon Lifco AB is expected to generate 1.23 times more return on investment than Essity AB. However, Lifco AB is 1.23 times more volatile than Essity AB. It trades about 0.12 of its potential returns per unit of risk. Essity AB is currently generating about 0.0 per unit of risk. If you would invest  32,060  in Lifco AB on December 30, 2024 and sell it today you would earn a total of  4,080  from holding Lifco AB or generate 12.73% return on investment over 90 days.

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

Lifco AB  vs.  Essity AB

Lifco AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lifco AB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Lifco AB sustained solid returns over the last few months and may actually be approaching a breakup point.

Essity AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days Essity AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Essity AB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lifco AB and Essity AB

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

The idea behind Lifco AB and Essity AB 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.