Correlation Between Swiss Leader and Holcim AG

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

By analyzing existing cross correlation between Swiss Leader Price and Holcim AG, you can compare the effects of market volatilities on Swiss Leader and Holcim AG 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 Swiss Leader with a short position of Holcim AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and Holcim AG.

Diversification Opportunities for Swiss Leader and Holcim AG

0.87

Correlation Coefficient

Swiss Leader  Holcim AG

Very poor diversification

The 3 months correlation between Swiss and Holcim is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and Holcim AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holcim AG and Swiss Leader 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 Swiss Leader Price are associated (or correlated) with Holcim AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holcim AG has no effect on the direction of Swiss Leader i.e., Swiss Leader and Holcim AG go up and down completely randomly.

Pair Corralation between Swiss Leader and Holcim AG

Assuming the 90 days trading horizon Swiss Leader is expected to generate 1.35 times less return on investment than Holcim AG. But when comparing it to its historical volatility, Swiss Leader Price is 2.31 times less risky than Holcim AG. It trades about 0.18 of its potential returns per unit of risk. Holcim AG is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  8,736  in Holcim AG on December 30, 2024 and sell it today you would earn a total of  914.00  from holding Holcim AG or generate 10.46% return on investment over 90 days.

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

Swiss Leader Price  vs.  Holcim AG

Pair Trading with Swiss Leader and Holcim AG

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

The idea behind Swiss Leader Price and Holcim AG 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..