Correlation Between H M and Sandvik AB
Can any of the company-specific risk be diversified away by investing in both H M and Sandvik AB 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 H M and Sandvik AB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between H M Hennes and Sandvik AB, you can compare the effects of market volatilities on H M and Sandvik AB 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 H M with a short position of Sandvik AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of H M and Sandvik AB.
Diversification Opportunities for H M and Sandvik AB
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between HM-B and Sandvik is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding H M Hennes and Sandvik AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandvik AB and H M 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 H M Hennes are associated (or correlated) with Sandvik AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandvik AB has no effect on the direction of H M i.e., H M and Sandvik AB go up and down completely randomly.
Pair Corralation between H M and Sandvik AB
Assuming the 90 days trading horizon H M Hennes is expected to under-perform the Sandvik AB. But the stock apears to be less risky and, when comparing its historical volatility, H M Hennes is 1.12 times less risky than Sandvik AB. The stock trades about -0.3 of its potential returns per unit of risk. The Sandvik AB is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest 21,490 in Sandvik AB on August 29, 2024 and sell it today you would lose (1,390) from holding Sandvik AB or give up 6.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
H M Hennes vs. Sandvik AB
Performance |
| Timeline |
| H M Hennes |
| Sandvik AB |
H M and Sandvik AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with H M and Sandvik AB
The main advantage of trading using opposite H M and Sandvik AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H M position performs unexpectedly, Sandvik AB 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 Sandvik AB will offset losses from the drop in Sandvik AB's long position.| H M vs. Telefonaktiebolaget LM Ericsson | H M vs. Swedbank AB | H M vs. AB Electrolux | H M vs. Investor AB ser |
| Sandvik AB vs. AB SKF | Sandvik AB vs. Alfa Laval AB | Sandvik AB vs. Atlas Copco AB | Sandvik AB vs. Boliden AB |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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