Correlation Between Svenska Cellulosa and Simpson Manufacturing

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

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

Diversification Opportunities for Svenska Cellulosa and Simpson Manufacturing

-0.14

Correlation Coefficient

Svenska Cellulosa  Simpson Manufacturing

Good diversification

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

Pair Corralation between Svenska Cellulosa and Simpson Manufacturing

Assuming the 90 days horizon Svenska Cellulosa Aktiebolaget is expected to generate 0.78 times more return on investment than Simpson Manufacturing. However, Svenska Cellulosa Aktiebolaget is 1.28 times less risky than Simpson Manufacturing. It trades about 0.13 of its potential returns per unit of risk. Simpson Manufacturing is currently generating about -0.03 per unit of risk. 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

Svenska Cellulosa Aktiebolaget  vs.  Simpson Manufacturing

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.

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.

Pair Trading with Svenska Cellulosa and Simpson Manufacturing

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

The idea behind Svenska Cellulosa Aktiebolaget and Simpson Manufacturing 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.