Correlation Between Sandvik AB and Carlsberg

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

By analyzing existing cross correlation between Sandvik AB ADR and Carlsberg AS, you can compare the effects of market volatilities on Sandvik AB and Carlsberg 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 Carlsberg. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sandvik AB and Carlsberg.

Diversification Opportunities for Sandvik AB and Carlsberg

0.83

Correlation Coefficient

Sandvik AB  Carlsberg

Very poor diversification

The 3 months correlation between Sandvik and Carlsberg is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sandvik AB ADR and Carlsberg AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carlsberg AS 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 ADR are associated (or correlated) with Carlsberg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carlsberg AS has no effect on the direction of Sandvik AB i.e., Sandvik AB and Carlsberg go up and down completely randomly.

Pair Corralation between Sandvik AB and Carlsberg

Assuming the 90 days horizon Sandvik AB ADR is expected to generate 0.93 times more return on investment than Carlsberg. However, Sandvik AB ADR is 1.07 times less risky than Carlsberg. It trades about 0.0 of its potential returns per unit of risk. Carlsberg AS is currently generating about -0.11 per unit of risk. If you would invest  1,989  in Sandvik AB ADR on September 12, 2024 and sell it today you would lose (24.00) from holding Sandvik AB ADR or give up 1.21% of portfolio value over 90 days.

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

Sandvik AB ADR  vs.  Carlsberg AS

Sandvik AB ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandvik AB ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Sandvik AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Carlsberg AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carlsberg AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Sandvik AB and Carlsberg

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

The idea behind Sandvik AB ADR and Carlsberg AS 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.