Can any of the company-specific risk be diversified away by investing in both BB Biotech and Skandinaviska Enskilda 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 BB Biotech and Skandinaviska Enskilda into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BB Biotech AG and Skandinaviska Enskilda Banken, you can compare the effects of market volatilities on BB Biotech and Skandinaviska Enskilda 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 BB Biotech with a short position of Skandinaviska Enskilda. Check out your portfolio center. Please also check ongoing floating volatility patterns of BB Biotech and Skandinaviska Enskilda.
Diversification Opportunities for BB Biotech and Skandinaviska Enskilda
The 3 months correlation between BBZA and Skandinaviska is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding BB Biotech AG and Skandinaviska Enskilda Banken in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skandinaviska Enskilda and BB Biotech 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 BB Biotech AG are associated (or correlated) with Skandinaviska Enskilda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skandinaviska Enskilda has no effect on the direction of BB Biotech i.e., BB Biotech and Skandinaviska Enskilda go up and down completely randomly.
Pair Corralation between BB Biotech and Skandinaviska Enskilda
Assuming the 90 days trading horizon BB Biotech AG is expected to under-perform the Skandinaviska Enskilda. But the stock apears to be less risky and, when comparing its historical volatility, BB Biotech AG is 1.61 times less risky than Skandinaviska Enskilda. The stock trades about -0.08 of its potential returns per unit of risk. The Skandinaviska Enskilda Banken is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,178 in Skandinaviska Enskilda Banken on March 6, 2024 and sell it today you would earn a total of 128.00 from holding Skandinaviska Enskilda Banken or generate 10.87% return on investment over 90 days.
Over the last 90 days BB Biotech AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Skandinaviska Enskilda Banken are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Skandinaviska Enskilda reported solid returns over the last few months and may actually be approaching a breakup point.