Correlation Between Alfa Laval and AB SKF

Can any of the company-specific risk be diversified away by investing in both Alfa Laval 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 Alfa Laval and AB SKF into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alfa Laval AB and AB SKF, you can compare the effects of market volatilities on Alfa Laval 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 Alfa Laval with a short position of AB SKF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfa Laval and AB SKF.

Diversification Opportunities for Alfa Laval and AB SKF

0.78

Correlation Coefficient

Alfa Laval  AB SKF

Poor diversification

The 3 months correlation between Alfa and SKF-B is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Laval AB and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF and Alfa Laval 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 Alfa Laval AB 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 Alfa Laval i.e., Alfa Laval and AB SKF go up and down completely randomly.

Pair Corralation between Alfa Laval and AB SKF

Assuming the 90 days trading horizon Alfa Laval AB is expected to generate 1.56 times more return on investment than AB SKF. However, Alfa Laval is 1.56 times more volatile than AB SKF. It trades about 0.3 of its potential returns per unit of risk. AB SKF is currently generating about 0.04 per unit of risk. If you would invest  41,425  in Alfa Laval AB on February 5, 2024 and sell it today you would earn a total of  5,575  from holding Alfa Laval AB or generate 13.46% return on investment over 90 days.

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

Alfa Laval AB  vs.  AB SKF

Alfa Laval AB

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Laval AB are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alfa Laval unveiled solid returns over the last few months and may actually be approaching a breakup point.

AB SKF

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, AB SKF unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfa Laval and AB SKF

The main advantage of trading using opposite Alfa Laval and AB SKF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Laval 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 Alfa Laval AB 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.