Correlation Between Sandvik AB and Lundin Gold

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

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

Diversification Opportunities for Sandvik AB and Lundin Gold

0.77

Correlation Coefficient

Sandvik AB  Lundin Gold

Poor diversification

The 3 months correlation between Sandvik and Lundin is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sandvik AB and Lundin Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lundin Gold and Sandvik 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 Sandvik AB are associated (or correlated) with Lundin Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lundin Gold has no effect on the direction of Sandvik AB i.e., Sandvik AB and Lundin Gold go up and down completely randomly.

Pair Corralation between Sandvik AB and Lundin Gold

Assuming the 90 days trading horizon Sandvik AB is expected to generate 2.78 times less return on investment than Lundin Gold. But when comparing it to its historical volatility, Sandvik AB is 1.3 times less risky than Lundin Gold. It trades about 0.09 of its potential returns per unit of risk. Lundin Gold is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  23,097  in Lundin Gold on December 30, 2024 and sell it today you would earn a total of  7,403  from holding Lundin Gold or generate 32.05% return on investment over 90 days.

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

Sandvik AB  vs.  Lundin Gold

Sandvik AB

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sandvik AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sandvik AB may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lundin Gold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lundin Gold are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Lundin Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sandvik AB and Lundin Gold

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

The idea behind Sandvik AB and Lundin Gold 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.