Correlation Between AB SKF and Makita
Can any of the company-specific risk be diversified away by investing in both AB SKF and Makita 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 AB SKF and Makita into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AB SKF and Makita, you can compare the effects of market volatilities on AB SKF and Makita 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 AB SKF with a short position of Makita. Check out your portfolio center. Please also check ongoing floating volatility patterns of AB SKF and Makita.
Diversification Opportunities for AB SKF and Makita
Good diversification
The 3 months correlation between SKFA and Makita is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding AB SKF and Makita in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Makita and AB SKF 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 AB SKF are associated (or correlated) with Makita. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Makita has no effect on the direction of AB SKF i.e., AB SKF and Makita go up and down completely randomly.
Pair Corralation between AB SKF and Makita
Assuming the 90 days trading horizon AB SKF is expected to under-perform the Makita. But the stock apears to be less risky and, when comparing its historical volatility, AB SKF is 1.2 times less risky than Makita. The stock trades about -0.09 of its potential returns per unit of risk. The Makita is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,690 in Makita on August 31, 2024 and sell it today you would earn a total of 230.00 from holding Makita or generate 8.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
AB SKF vs. Makita
Performance |
| Timeline |
| AB SKF |
| Makita |
AB SKF and Makita Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AB SKF and Makita
The main advantage of trading using opposite AB SKF and Makita positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AB SKF position performs unexpectedly, Makita 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 Makita will offset losses from the drop in Makita's long position.| AB SKF vs. Strategic Education | AB SKF vs. DEVRY EDUCATION GRP | AB SKF vs. Mobilezone Holding AG | AB SKF vs. Charter Communications |
| Makita vs. SINGAPORE AIRLINES | Makita vs. Aegean Airlines SA | Makita vs. International Consolidated Airlines | Makita vs. G III Apparel Group |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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