Correlation Between Siemens AG and Kone Oyj

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

By analyzing existing cross correlation between Siemens AG Class and Kone Oyj ADR, you can compare the effects of market volatilities on Siemens AG and Kone Oyj 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 Siemens AG with a short position of Kone Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of Siemens AG and Kone Oyj.

Diversification Opportunities for Siemens AG and Kone Oyj

0.71

Correlation Coefficient

Siemens AG  Kone Oyj

Poor diversification

The 3 months correlation between Siemens and Kone is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Siemens AG Class and Kone Oyj ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kone Oyj ADR and Siemens AG 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 Siemens AG Class are associated (or correlated) with Kone Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kone Oyj ADR has no effect on the direction of Siemens AG i.e., Siemens AG and Kone Oyj go up and down completely randomly.

Pair Corralation between Siemens AG and Kone Oyj

Assuming the 90 days horizon Siemens AG Class is expected to generate 1.64 times more return on investment than Kone Oyj. However, Siemens AG is 1.64 times more volatile than Kone Oyj ADR. It trades about 0.15 of its potential returns per unit of risk. Kone Oyj ADR is currently generating about 0.12 per unit of risk. If you would invest  19,333  in Siemens AG Class on November 29, 2024 and sell it today you would earn a total of  3,812  from holding Siemens AG Class or generate 19.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Siemens AG Class  vs.  Kone Oyj ADR

Siemens AG Class

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Siemens AG Class are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Siemens AG reported solid returns over the last few months and may actually be approaching a breakup point.

Kone Oyj ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kone Oyj ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady forward-looking indicators, Kone Oyj may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Siemens AG and Kone Oyj

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

The idea behind Siemens AG Class and Kone Oyj ADR 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.