Correlation Between Sandvik AB and SPX Corp

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

Diversification Opportunities for Sandvik AB and SPX Corp

-0.44

Correlation Coefficient

Sandvik AB  SPX Corp

Very good diversification

The 3 months correlation between Sandvik and SPX is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sandvik AB ADR and SPX Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPX Corp 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 SPX Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPX Corp has no effect on the direction of Sandvik AB i.e., Sandvik AB and SPX Corp go up and down completely randomly.

Pair Corralation between Sandvik AB and SPX Corp

Assuming the 90 days horizon Sandvik AB ADR is expected to generate 0.8 times more return on investment than SPX Corp. However, Sandvik AB ADR is 1.25 times less risky than SPX Corp. It trades about 0.18 of its potential returns per unit of risk. SPX Corp is currently generating about -0.03 per unit of risk. If you would invest  1,804  in Sandvik AB ADR on December 28, 2024 and sell it today you would earn a total of  437.00  from holding Sandvik AB ADR or generate 24.22% 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 ADR  vs.  SPX Corp

Sandvik AB ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sandvik AB ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, Sandvik AB showed solid returns over the last few months and may actually be approaching a breakup point.

SPX Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPX Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SPX Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sandvik AB and SPX Corp

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

The idea behind Sandvik AB ADR and SPX Corp 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.