Correlation Between AAK AB and Scandinavian Enviro

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

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

Diversification Opportunities for AAK AB and Scandinavian Enviro

0.78

Correlation Coefficient

AAK AB  Scandinavian Enviro

Poor diversification

The 3 months correlation between AAK and Scandinavian is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding AAK AB and Scandinavian Enviro Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Enviro and AAK 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 AAK AB are associated (or correlated) with Scandinavian Enviro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Enviro has no effect on the direction of AAK AB i.e., AAK AB and Scandinavian Enviro go up and down completely randomly.

Pair Corralation between AAK AB and Scandinavian Enviro

Assuming the 90 days trading horizon AAK AB is expected to generate 0.79 times more return on investment than Scandinavian Enviro. However, AAK AB is 1.26 times less risky than Scandinavian Enviro. It trades about -0.05 of its potential returns per unit of risk. Scandinavian Enviro Systems is currently generating about -0.18 per unit of risk. If you would invest  33,160  in AAK AB on September 13, 2024 and sell it today you would lose (1,760) from holding AAK AB or give up 5.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

AAK AB  vs.  Scandinavian Enviro Systems

AAK AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AAK AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking signals, AAK AB is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Scandinavian Enviro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scandinavian Enviro Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with AAK AB and Scandinavian Enviro

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

The idea behind AAK AB and Scandinavian Enviro Systems 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.