Correlation Between Svenska Cellulosa and AB SKF

Can any of the company-specific risk be diversified away by investing in both Svenska Cellulosa and AB SKF 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 AB SKF 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 AB SKF, you can compare the effects of market volatilities on Svenska Cellulosa and AB SKF 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 AB SKF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Svenska Cellulosa and AB SKF.

Diversification Opportunities for Svenska Cellulosa and AB SKF

0.04

Correlation Coefficient

Svenska Cellulosa  AB SKF

Significant diversification

The 3 months correlation between Svenska and SKF-B is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Svenska Cellulosa Aktiebolaget and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF 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 AB SKF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB SKF has no effect on the direction of Svenska Cellulosa i.e., Svenska Cellulosa and AB SKF go up and down completely randomly.

Pair Corralation between Svenska Cellulosa and AB SKF

Assuming the 90 days trading horizon Svenska Cellulosa is expected to generate 7.77 times less return on investment than AB SKF. But when comparing it to its historical volatility, Svenska Cellulosa Aktiebolaget is 1.06 times less risky than AB SKF. It trades about 0.01 of its potential returns per unit of risk. AB SKF is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  19,295  in AB SKF on August 31, 2024 and sell it today you would earn a total of  1,655  from holding AB SKF or generate 8.58% return on investment over 90 days.

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

Svenska Cellulosa Aktiebolaget  vs.  AB SKF

Svenska Cellulosa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Svenska Cellulosa Aktiebolaget has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

AB SKF

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, AB SKF may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Svenska Cellulosa and AB SKF

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

The idea behind Svenska Cellulosa Aktiebolaget and AB SKF 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.