Correlation Between Makita and AB SKF
Can any of the company-specific risk be diversified away by investing in both Makita and AB SKF 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 Makita and AB SKF into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Makita and AB SKF, you can compare the effects of market volatilities on Makita and AB SKF 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 Makita with a short position of AB SKF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Makita and AB SKF.
Diversification Opportunities for Makita and AB SKF
Significant diversification
The 3 months correlation between Makita and SKFB is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Makita and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF and Makita 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 Makita are associated (or correlated) with AB SKF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB SKF has no effect on the direction of Makita i.e., Makita and AB SKF go up and down completely randomly.
Pair Corralation between Makita and AB SKF
Assuming the 90 days trading horizon Makita is expected to under-perform the AB SKF. But the stock apears to be less risky and, when comparing its historical volatility, Makita is 1.06 times less risky than AB SKF. The stock trades about -0.07 of its potential returns per unit of risk. The AB SKF is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,838 in AB SKF on October 20, 2024 and sell it today you would earn a total of 7.00 from holding AB SKF or generate 0.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 94.44% |
| Values | Daily Returns |
Makita vs. AB SKF
Performance |
| Timeline |
| Makita |
| AB SKF |
Makita and AB SKF Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Makita and AB SKF
The main advantage of trading using opposite Makita and AB SKF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Makita position performs unexpectedly, AB SKF 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 AB SKF will offset losses from the drop in AB SKF's long position.The idea behind Makita and AB SKF 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.| AB SKF vs. Techtronic Industries | AB SKF vs. Snap on Incorporated | AB SKF vs. Stanley Black Decker | AB SKF vs. Toro Co |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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