Correlation Between Svenska Cellulosa and Canfor

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

Diversification Opportunities for Svenska Cellulosa and Canfor

0.05

Correlation Coefficient

Svenska Cellulosa  Canfor

Significant diversification

The 3 months correlation between Svenska and Canfor is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Svenska Cellulosa Aktiebolaget and Canfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor 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 Canfor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canfor has no effect on the direction of Svenska Cellulosa i.e., Svenska Cellulosa and Canfor go up and down completely randomly.

Pair Corralation between Svenska Cellulosa and Canfor

Assuming the 90 days trading horizon Svenska Cellulosa Aktiebolaget is expected to generate 0.54 times more return on investment than Canfor. However, Svenska Cellulosa Aktiebolaget is 1.86 times less risky than Canfor. It trades about -0.25 of its potential returns per unit of risk. Canfor is currently generating about -0.37 per unit of risk. If you would invest  1,226  in Svenska Cellulosa Aktiebolaget on September 24, 2024 and sell it today you would lose (68.00) from holding Svenska Cellulosa Aktiebolaget or give up 5.55% of portfolio value over 90 days.

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

Svenska Cellulosa Aktiebolaget  vs.  Canfor

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Canfor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canfor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canfor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Svenska Cellulosa and Canfor

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

The idea behind Svenska Cellulosa Aktiebolaget and Canfor 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.