Correlation Between Swisscom and Swatch Group

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

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

Diversification Opportunities for Swisscom and Swatch Group

0.1

Correlation Coefficient

Swisscom  Swatch Group

Average diversification

The 3 months correlation between Swisscom and Swatch is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Swisscom AG and Swatch Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group AG and Swisscom 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 Swisscom AG are associated (or correlated) with Swatch Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swatch Group AG has no effect on the direction of Swisscom i.e., Swisscom and Swatch Group go up and down completely randomly.

Pair Corralation between Swisscom and Swatch Group

Assuming the 90 days trading horizon Swisscom AG is expected to under-perform the Swatch Group. But the stock apears to be less risky and, when comparing its historical volatility, Swisscom AG is 2.03 times less risky than Swatch Group. The stock trades about -0.01 of its potential returns per unit of risk. The Swatch Group AG is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  15,930  in Swatch Group AG on November 28, 2024 and sell it today you would earn a total of  1,880  from holding Swatch Group AG or generate 11.8% return on investment over 90 days.

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

Swisscom AG  vs.  Swatch Group AG

Swisscom AG

Risk-Adjusted Performance

Very Weak

Over the last 90 days Swisscom AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Swisscom is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Swatch Group AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Swatch Group AG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Swatch Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Swisscom and Swatch Group

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

The idea behind Swisscom AG and Swatch Group AG 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.