Correlation Between Sandvik AB and SMC Corp

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

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

Diversification Opportunities for Sandvik AB and SMC Corp

-0.5

Correlation Coefficient

Sandvik AB  SMC Corp

Very good diversification

The 3 months correlation between Sandvik and SMC is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Sandvik AB and SMC Corp Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Corp Japan and Sandvik AB 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 Sandvik AB are associated (or correlated) with SMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Corp Japan has no effect on the direction of Sandvik AB i.e., Sandvik AB and SMC Corp go up and down completely randomly.

Pair Corralation between Sandvik AB and SMC Corp

Assuming the 90 days horizon Sandvik AB is expected to generate 1.47 times more return on investment than SMC Corp. However, Sandvik AB is 1.47 times more volatile than SMC Corp Japan. It trades about 0.14 of its potential returns per unit of risk. SMC Corp Japan is currently generating about -0.11 per unit of risk. If you would invest  1,827  in Sandvik AB on November 29, 2024 and sell it today you would earn a total of  409.00  from holding Sandvik AB or generate 22.39% return on investment over 90 days.

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

Sandvik AB  vs.  SMC Corp Japan

Sandvik AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sandvik AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Sandvik AB reported solid returns over the last few months and may actually be approaching a breakup point.

SMC Corp Japan

Risk-Adjusted Performance

Very Weak

Over the last 90 days SMC Corp Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sandvik AB and SMC Corp

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

The idea behind Sandvik AB and SMC Corp Japan 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.