Correlation Between Sandvik AB and NCC AB

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

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

Diversification Opportunities for Sandvik AB and NCC AB

0.22

Correlation Coefficient

Sandvik AB  NCC AB

Modest diversification

The 3 months correlation between Sandvik and NCC is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Sandvik AB and NCC AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NCC AB 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 NCC AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NCC AB has no effect on the direction of Sandvik AB i.e., Sandvik AB and NCC AB go up and down completely randomly.

Pair Corralation between Sandvik AB and NCC AB

Assuming the 90 days trading horizon Sandvik AB is expected to generate 5.0 times less return on investment than NCC AB. But when comparing it to its historical volatility, Sandvik AB is 1.17 times less risky than NCC AB. It trades about 0.03 of its potential returns per unit of risk. NCC AB is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  15,838  in NCC AB on October 24, 2024 and sell it today you would earn a total of  1,792  from holding NCC AB or generate 11.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Sandvik AB  vs.  NCC AB

Sandvik AB

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sandvik AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sandvik AB is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

NCC AB

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NCC AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NCC AB may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sandvik AB and NCC AB

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

The idea behind Sandvik AB and NCC 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..