Correlation Between Simpson Manufacturing and Svenska Cellulosa

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

By analyzing existing cross correlation between Simpson Manufacturing and Svenska Cellulosa Aktiebolaget, you can compare the effects of market volatilities on Simpson Manufacturing and Svenska Cellulosa 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 Simpson Manufacturing with a short position of Svenska Cellulosa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Simpson Manufacturing and Svenska Cellulosa.

Diversification Opportunities for Simpson Manufacturing and Svenska Cellulosa

-0.14

Correlation Coefficient

Simpson Manufacturing  Svenska Cellulosa

Good diversification

The 3 months correlation between Simpson and Svenska is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Simpson Manufacturing and Svenska Cellulosa Aktiebolaget in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Svenska Cellulosa and Simpson Manufacturing 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 Simpson Manufacturing are associated (or correlated) with Svenska Cellulosa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Svenska Cellulosa has no effect on the direction of Simpson Manufacturing i.e., Simpson Manufacturing and Svenska Cellulosa go up and down completely randomly.

Pair Corralation between Simpson Manufacturing and Svenska Cellulosa

Considering the 90-day investment horizon Simpson Manufacturing is expected to under-perform the Svenska Cellulosa. In addition to that, Simpson Manufacturing is 1.28 times more volatile than Svenska Cellulosa Aktiebolaget. It trades about -0.03 of its total potential returns per unit of risk. Svenska Cellulosa Aktiebolaget is currently generating about 0.13 per unit of volatility. If you would invest  1,225  in Svenska Cellulosa Aktiebolaget on December 29, 2024 and sell it today you would earn a total of  118.00  from holding Svenska Cellulosa Aktiebolaget or generate 9.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Simpson Manufacturing  vs.  Svenska Cellulosa Aktiebolaget

Simpson Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simpson Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Simpson Manufacturing is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Svenska Cellulosa

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Svenska Cellulosa Aktiebolaget are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Svenska Cellulosa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Simpson Manufacturing and Svenska Cellulosa

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

The idea behind Simpson Manufacturing and Svenska Cellulosa Aktiebolaget 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.