Correlation Between Rottneros and Proact IT

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

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

Diversification Opportunities for Rottneros and Proact IT

0.86

Correlation Coefficient

Rottneros  Proact IT

Very poor diversification

The 3 months correlation between Rottneros and Proact is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Rottneros AB and Proact IT Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Proact IT Group 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 Proact IT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Proact IT Group has no effect on the direction of Rottneros i.e., Rottneros and Proact IT go up and down completely randomly.

Pair Corralation between Rottneros and Proact IT

Assuming the 90 days trading horizon Rottneros AB is expected to under-perform the Proact IT. But the stock apears to be less risky and, when comparing its historical volatility, Rottneros AB is 1.21 times less risky than Proact IT. The stock trades about -0.05 of its potential returns per unit of risk. The Proact IT Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,236  in Proact IT Group on September 24, 2024 and sell it today you would earn a total of  2,724  from holding Proact IT Group or generate 29.49% return on investment over 90 days.

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

Rottneros AB  vs.  Proact IT Group

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 uncertain 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.

Proact IT Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Proact IT Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Rottneros and Proact IT

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

The idea behind Rottneros AB and Proact IT Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.