Correlation Between ASSA ABLOY and Atlas Copco

Can any of the company-specific risk be diversified away by investing in both ASSA ABLOY and Atlas Copco 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 Atlas Copco 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 Atlas Copco AB, you can compare the effects of market volatilities on ASSA ABLOY and Atlas Copco 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 Atlas Copco. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASSA ABLOY and Atlas Copco.

Diversification Opportunities for ASSA ABLOY and Atlas Copco

0.63

Correlation Coefficient

ASSA ABLOY  Atlas Copco

Poor diversification

The 3 months correlation between ASSA and Atlas is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding ASSA ABLOY AB and Atlas Copco AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco AB 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 Atlas Copco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlas Copco AB has no effect on the direction of ASSA ABLOY i.e., ASSA ABLOY and Atlas Copco go up and down completely randomly.

Pair Corralation between ASSA ABLOY and Atlas Copco

Assuming the 90 days trading horizon ASSA ABLOY is expected to generate 2.35 times less return on investment than Atlas Copco. But when comparing it to its historical volatility, ASSA ABLOY AB is 1.72 times less risky than Atlas Copco. It trades about 0.17 of its potential returns per unit of risk. Atlas Copco AB is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  18,252  in Atlas Copco AB on February 16, 2024 and sell it today you would earn a total of  1,878  from holding Atlas Copco AB or generate 10.29% return on investment over 90 days.

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

ASSA ABLOY AB  vs.  Atlas Copco AB

ASSA ABLOY AB

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ASSA ABLOY AB are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ASSA ABLOY may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Atlas Copco AB

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Atlas Copco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASSA ABLOY and Atlas Copco

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

The idea behind ASSA ABLOY AB and Atlas Copco AB 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.