Correlation Between Softronic and Transtema Group

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

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

Diversification Opportunities for Softronic and Transtema Group

0.73

Correlation Coefficient

Softronic  Transtema Group

Poor diversification

The 3 months correlation between Softronic and Transtema is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Softronic AB and Transtema Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transtema Group AB and Softronic 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 Softronic AB are associated (or correlated) with Transtema Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transtema Group AB has no effect on the direction of Softronic i.e., Softronic and Transtema Group go up and down completely randomly.

Pair Corralation between Softronic and Transtema Group

Assuming the 90 days trading horizon Softronic AB is expected to generate 0.9 times more return on investment than Transtema Group. However, Softronic AB is 1.11 times less risky than Transtema Group. It trades about -0.19 of its potential returns per unit of risk. Transtema Group AB is currently generating about -0.19 per unit of risk. If you would invest  2,415  in Softronic AB on October 7, 2024 and sell it today you would lose (80.00) from holding Softronic AB or give up 3.31% of portfolio value over 90 days.

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

Softronic AB  vs.  Transtema Group AB

Softronic AB

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Softronic AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Softronic may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Transtema Group AB

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transtema Group AB are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Transtema Group is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Softronic and Transtema Group

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

The idea behind Softronic AB and Transtema Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.