Correlation Between Peab AB and SolTech Energy

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

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

Diversification Opportunities for Peab AB and SolTech Energy

0.04

Correlation Coefficient

Peab AB  SolTech Energy

Significant diversification

The 3 months correlation between Peab and SolTech is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Peab AB and SolTech Energy Sweden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SolTech Energy Sweden and Peab 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 Peab AB are associated (or correlated) with SolTech Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SolTech Energy Sweden has no effect on the direction of Peab AB i.e., Peab AB and SolTech Energy go up and down completely randomly.

Pair Corralation between Peab AB and SolTech Energy

Assuming the 90 days trading horizon Peab AB is expected to generate 76.12 times less return on investment than SolTech Energy. But when comparing it to its historical volatility, Peab AB is 4.88 times less risky than SolTech Energy. It trades about 0.01 of its potential returns per unit of risk. SolTech Energy Sweden is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  185.00  in SolTech Energy Sweden on December 31, 2024 and sell it today you would earn a total of  121.00  from holding SolTech Energy Sweden or generate 65.41% return on investment over 90 days.

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

Peab AB  vs.  SolTech Energy Sweden

Peab AB

Risk-Adjusted Performance

Very Weak

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

SolTech Energy Sweden

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SolTech Energy Sweden are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, SolTech Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Peab AB and SolTech Energy

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

The idea behind Peab AB and SolTech Energy Sweden 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.