Correlation Between Assa Abloy and SECOM CO

Can any of the company-specific risk be diversified away by investing in both Assa Abloy and SECOM CO 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 Assa Abloy and SECOM CO into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Assa Abloy and SECOM CO

0.41

Correlation Coefficient

Assa Abloy  SECOM CO

Very weak diversification

The 3 months correlation between Assa and SECOM is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Assa Abloy AB and SECOM LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SECOM LTD and Assa Abloy 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 Assa Abloy AB are associated (or correlated) with SECOM CO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SECOM LTD has no effect on the direction of Assa Abloy i.e., Assa Abloy and SECOM CO go up and down completely randomly.

Pair Corralation between Assa Abloy and SECOM CO

Assuming the 90 days horizon Assa Abloy AB is expected to under-perform the SECOM CO. In addition to that, Assa Abloy is 4.23 times more volatile than SECOM LTD. It trades about -0.09 of its total potential returns per unit of risk. SECOM LTD is currently generating about -0.28 per unit of volatility. If you would invest  7,114  in SECOM LTD on February 7, 2024 and sell it today you would lose (158.00) from holding SECOM LTD or give up 2.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.91%
Values	Daily Returns

Assa Abloy AB  vs.  SECOM LTD

Assa Abloy AB

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Assa Abloy AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Assa Abloy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SECOM LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SECOM LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, SECOM CO is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Assa Abloy and SECOM CO

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

The idea behind Assa Abloy AB and SECOM LTD 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.