Correlation Between AB SKF and Techtronic Industries

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

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

Diversification Opportunities for AB SKF and Techtronic Industries

-0.09

Correlation Coefficient

AB SKF  Techtronic Industries

Good diversification

The 3 months correlation between SKFA and Techtronic is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding AB SKF and Techtronic Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Techtronic Industries and AB SKF 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 AB SKF are associated (or correlated) with Techtronic Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Techtronic Industries has no effect on the direction of AB SKF i.e., AB SKF and Techtronic Industries go up and down completely randomly.

Pair Corralation between AB SKF and Techtronic Industries

Assuming the 90 days trading horizon AB SKF is expected to generate 0.99 times more return on investment than Techtronic Industries. However, AB SKF is 1.01 times less risky than Techtronic Industries. It trades about 0.1 of its potential returns per unit of risk. Techtronic Industries is currently generating about -0.06 per unit of risk. If you would invest  1,788  in AB SKF on December 23, 2024 and sell it today you would earn a total of  222.00  from holding AB SKF or generate 12.42% return on investment over 90 days.

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

AB SKF  vs.  Techtronic Industries

AB SKF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, AB SKF reported solid returns over the last few months and may actually be approaching a breakup point.

Techtronic Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Techtronic Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with AB SKF and Techtronic Industries

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

The idea behind AB SKF and Techtronic Industries 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.