Correlation Between Rottneros and Holmen AB

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

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

Diversification Opportunities for Rottneros and Holmen AB

0.75

Correlation Coefficient

Rottneros  Holmen AB

Poor diversification

The 3 months correlation between Rottneros and Holmen is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Rottneros AB and Holmen AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holmen AB and Rottneros 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 Rottneros AB 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 Rottneros i.e., Rottneros and Holmen AB go up and down completely randomly.

Pair Corralation between Rottneros and Holmen AB

Assuming the 90 days trading horizon Rottneros AB is expected to under-perform the Holmen AB. In addition to that, Rottneros is 1.22 times more volatile than Holmen AB. It trades about -0.08 of its total potential returns per unit of risk. Holmen AB is currently generating about -0.09 per unit of volatility. If you would invest  42,600  in Holmen AB on September 23, 2024 and sell it today you would lose (3,400) from holding Holmen AB or give up 7.98% of portfolio value over 90 days.

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

Rottneros AB  vs.  Holmen AB

Rottneros AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rottneros AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 uncertain 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 Rottneros and Holmen AB

The main advantage of trading using opposite Rottneros and Holmen AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rottneros 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 Rottneros AB 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.