Correlation Between NGK Insulators and Alfa Laval

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

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

Diversification Opportunities for NGK Insulators and Alfa Laval

0.03

Correlation Coefficient

NGK Insulators  Alfa Laval

Significant diversification

The 3 months correlation between NGK and Alfa is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding NGK Insulators and Alfa Laval AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Laval AB and NGK Insulators 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 NGK Insulators are associated (or correlated) with Alfa Laval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Laval AB has no effect on the direction of NGK Insulators i.e., NGK Insulators and Alfa Laval go up and down completely randomly.

Pair Corralation between NGK Insulators and Alfa Laval

Assuming the 90 days horizon NGK Insulators is expected to generate 1.54 times less return on investment than Alfa Laval. In addition to that, NGK Insulators is 2.07 times more volatile than Alfa Laval AB. It trades about 0.02 of its total potential returns per unit of risk. Alfa Laval AB is currently generating about 0.06 per unit of volatility. If you would invest  3,690  in Alfa Laval AB on December 4, 2024 and sell it today you would earn a total of  750.00  from holding Alfa Laval AB or generate 20.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	67.95%
Values	Daily Returns

NGK Insulators  vs.  Alfa Laval AB

NGK Insulators

Risk-Adjusted Performance

Very Weak

Over the last 90 days NGK Insulators has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, NGK Insulators is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Alfa Laval AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Laval AB are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Alfa Laval is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NGK Insulators and Alfa Laval

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

The idea behind NGK Insulators and Alfa Laval 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.