Correlation Between Svenska Cellulosa and Essity AB

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

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

Diversification Opportunities for Svenska Cellulosa and Essity AB

-0.67

Correlation Coefficient

Svenska Cellulosa  Essity AB

Excellent diversification

The 3 months correlation between Svenska and Essity is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Svenska Cellulosa Aktiebolaget and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB and Svenska Cellulosa 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 Svenska Cellulosa Aktiebolaget are associated (or correlated) with Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of Svenska Cellulosa i.e., Svenska Cellulosa and Essity AB go up and down completely randomly.

Pair Corralation between Svenska Cellulosa and Essity AB

Assuming the 90 days trading horizon Svenska Cellulosa Aktiebolaget is expected to generate 1.03 times more return on investment than Essity AB. However, Svenska Cellulosa is 1.03 times more volatile than Essity AB. It trades about 0.07 of its potential returns per unit of risk. Essity AB is currently generating about -0.01 per unit of risk. If you would invest  14,170  in Svenska Cellulosa Aktiebolaget on November 29, 2024 and sell it today you would earn a total of  665.00  from holding Svenska Cellulosa Aktiebolaget or generate 4.69% return on investment over 90 days.

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

Svenska Cellulosa Aktiebolaget  vs.  Essity AB

Svenska Cellulosa

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Svenska Cellulosa Aktiebolaget are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Svenska Cellulosa is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Essity AB

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Svenska Cellulosa and Essity AB

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

The idea behind Svenska Cellulosa Aktiebolaget and Essity 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.