Correlation Between Secom Co and Alfa Laval

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

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

Diversification Opportunities for Secom Co and Alfa Laval

0.65

Correlation Coefficient

Secom Co  Alfa Laval

Poor diversification

The 3 months correlation between Secom and Alfa is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Secom Co Ltd 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 Secom Co 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 Secom Co Ltd 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 Secom Co i.e., Secom Co and Alfa Laval go up and down completely randomly.

Pair Corralation between Secom Co and Alfa Laval

Assuming the 90 days horizon Secom Co is expected to generate 2.91 times less return on investment than Alfa Laval. But when comparing it to its historical volatility, Secom Co Ltd is 1.3 times less risky than Alfa Laval. It trades about 0.04 of its potential returns per unit of risk. Alfa Laval AB is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,212  in Alfa Laval AB on December 27, 2024 and sell it today you would earn a total of  295.00  from holding Alfa Laval AB or generate 7.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Secom Co Ltd  vs.  Alfa Laval AB

Secom Co

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Secom Co Ltd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Secom Co 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

Modest

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

Pair Trading with Secom Co and Alfa Laval

The main advantage of trading using opposite Secom Co and Alfa Laval positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Secom Co 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 Secom Co Ltd 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.