Correlation Between EuropaCorp and Holmen AB

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

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

Diversification Opportunities for EuropaCorp and Holmen AB

0.75

Correlation Coefficient

EuropaCorp  Holmen AB

Poor diversification

The 3 months correlation between EuropaCorp and Holmen is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding EuropaCorp and Holmen AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holmen AB and EuropaCorp 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 EuropaCorp are associated (or correlated) with Holmen AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holmen AB has no effect on the direction of EuropaCorp i.e., EuropaCorp and Holmen AB go up and down completely randomly.

Pair Corralation between EuropaCorp and Holmen AB

Assuming the 90 days horizon EuropaCorp is expected to under-perform the Holmen AB. In addition to that, EuropaCorp is 2.63 times more volatile than Holmen AB. It trades about -0.12 of its total potential returns per unit of risk. Holmen AB is currently generating about -0.06 per unit of volatility. If you would invest  3,810  in Holmen AB on September 20, 2024 and sell it today you would lose (184.00) from holding Holmen AB or give up 4.83% of portfolio value over 90 days.

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

EuropaCorp  vs.  Holmen AB

EuropaCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EuropaCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Holmen AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with EuropaCorp and Holmen AB

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

The idea behind EuropaCorp and Holmen 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.