Correlation Between Modern Times and Holmen AB

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

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

Diversification Opportunities for Modern Times and Holmen AB

-0.72

Correlation Coefficient

Modern Times  Holmen AB

Pay attention - limited upside

The 3 months correlation between Modern and Holmen is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Modern Times Group and Holmen AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holmen AB and Modern Times 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 Modern Times Group are associated (or correlated) with Holmen AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holmen AB has no effect on the direction of Modern Times i.e., Modern Times and Holmen AB go up and down completely randomly.

Pair Corralation between Modern Times and Holmen AB

Assuming the 90 days trading horizon Modern Times Group is expected to generate 1.81 times more return on investment than Holmen AB. However, Modern Times is 1.81 times more volatile than Holmen AB. It trades about 0.03 of its potential returns per unit of risk. Holmen AB is currently generating about 0.0 per unit of risk. If you would invest  7,900  in Modern Times Group on October 5, 2024 and sell it today you would earn a total of  1,700  from holding Modern Times Group or generate 21.52% return on investment over 90 days.

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

Modern Times Group  vs.  Holmen AB

Modern Times Group

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Modern Times Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Modern Times unveiled solid returns over the last few months and may actually be approaching a breakup point.

Holmen AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Holmen AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Modern Times and Holmen AB

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

The idea behind Modern Times Group and Holmen 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.