Correlation Between Sandvik AB and Atlas Copco

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

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

Diversification Opportunities for Sandvik AB and Atlas Copco

0.35

Correlation Coefficient

Sandvik AB  Atlas Copco

Weak diversification

The 3 months correlation between Sandvik and Atlas is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Sandvik 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 Sandvik AB 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 Sandvik 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 Sandvik AB i.e., Sandvik AB and Atlas Copco go up and down completely randomly.

Pair Corralation between Sandvik AB and Atlas Copco

Assuming the 90 days trading horizon Sandvik AB is expected to under-perform the Atlas Copco. But the stock apears to be less risky and, when comparing its historical volatility, Sandvik AB is 1.34 times less risky than Atlas Copco. The stock trades about -0.04 of its potential returns per unit of risk. The Atlas Copco AB is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  18,475  in Atlas Copco AB on February 14, 2024 and sell it today you would earn a total of  1,505  from holding Atlas Copco AB or generate 8.15% return on investment over 90 days.

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

Sandvik AB  vs.  Atlas Copco AB

Sandvik AB

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sandvik AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Sandvik AB may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Atlas Copco AB

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 15 (%) 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 Sandvik AB and Atlas Copco

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

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.