Correlation Between Svenska Cellulosa and Transportadora

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

Diversification Opportunities for Svenska Cellulosa and Transportadora

-0.59

Correlation Coefficient

Svenska Cellulosa  Transportadora

Excellent diversification

The 3 months correlation between Svenska and Transportadora is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Svenska Cellulosa Aktiebolaget and Transportadora de Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportadora de Gas 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 Transportadora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportadora de Gas has no effect on the direction of Svenska Cellulosa i.e., Svenska Cellulosa and Transportadora go up and down completely randomly.

Pair Corralation between Svenska Cellulosa and Transportadora

Assuming the 90 days trading horizon Svenska Cellulosa Aktiebolaget is expected to generate 0.2 times more return on investment than Transportadora. However, Svenska Cellulosa Aktiebolaget is 5.02 times less risky than Transportadora. It trades about -0.25 of its potential returns per unit of risk. Transportadora de Gas is currently generating about -0.05 per unit of risk. If you would invest  1,226  in Svenska Cellulosa Aktiebolaget on September 25, 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Svenska Cellulosa Aktiebolaget  vs.  Transportadora de Gas

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.

Transportadora de Gas

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportadora de Gas are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking signals, Transportadora reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Svenska Cellulosa and Transportadora

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

The idea behind Svenska Cellulosa Aktiebolaget and Transportadora de Gas 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.