Correlation Between Sodexo PK and Alfa Laval

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

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

Diversification Opportunities for Sodexo PK and Alfa Laval

-0.41

Correlation Coefficient

Sodexo PK  Alfa Laval

Very good diversification

The 3 months correlation between Sodexo and Alfa is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Sodexo PK and Alfa Laval AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Laval AB and Sodexo PK 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 Sodexo PK are associated (or correlated) with Alfa Laval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Laval AB has no effect on the direction of Sodexo PK i.e., Sodexo PK and Alfa Laval go up and down completely randomly.

Pair Corralation between Sodexo PK and Alfa Laval

Assuming the 90 days horizon Sodexo PK is expected to under-perform the Alfa Laval. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sodexo PK is 1.19 times less risky than Alfa Laval. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Alfa Laval AB is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,408  in Alfa Laval AB on September 5, 2024 and sell it today you would earn a total of  10.00  from holding Alfa Laval AB or generate 0.23% return on investment over 90 days.

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

Sodexo PK  vs.  Alfa Laval AB

Sodexo PK

Risk-Adjusted Performance

0 of 100

Very Weak

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

Alfa Laval AB

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Laval AB are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Alfa Laval is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sodexo PK and Alfa Laval

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

The idea behind Sodexo PK and Alfa Laval AB 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.