Correlation Between Vestas Wind and Atlas Copco

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

By analyzing existing cross correlation between Vestas Wind Systems and Atlas Copco A, you can compare the effects of market volatilities on Vestas Wind and Atlas Copco 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 Vestas Wind with a short position of Atlas Copco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vestas Wind and Atlas Copco.

Diversification Opportunities for Vestas Wind and Atlas Copco

0.74

Correlation Coefficient

Vestas Wind  Atlas Copco

Poor diversification

The 3 months correlation between Vestas and Atlas is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Atlas Copco A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco A and Vestas Wind 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 Vestas Wind Systems are associated (or correlated) with Atlas Copco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlas Copco A has no effect on the direction of Vestas Wind i.e., Vestas Wind and Atlas Copco go up and down completely randomly.

Pair Corralation between Vestas Wind and Atlas Copco

Assuming the 90 days trading horizon Vestas Wind Systems is expected to under-perform the Atlas Copco. In addition to that, Vestas Wind is 1.59 times more volatile than Atlas Copco A. It trades about -0.12 of its total potential returns per unit of risk. Atlas Copco A is currently generating about -0.03 per unit of volatility. If you would invest  1,586  in Atlas Copco A on September 27, 2024 and sell it today you would lose (146.00) from holding Atlas Copco A or give up 9.21% of portfolio value over 90 days.

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

Vestas Wind Systems  vs.  Atlas Copco A

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Atlas Copco A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Atlas Copco A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Vestas Wind and Atlas Copco

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

The idea behind Vestas Wind Systems and Atlas Copco A 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.