Correlation Between Essity AB and Hanza AB

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

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

Diversification Opportunities for Essity AB and Hanza AB

-0.74

Correlation Coefficient

Essity AB  Hanza AB

Pay attention - limited upside

The 3 months correlation between Essity and Hanza is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Essity AB and Hanza AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanza AB and Essity 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 Essity AB are associated (or correlated) with Hanza AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanza AB has no effect on the direction of Essity AB i.e., Essity AB and Hanza AB go up and down completely randomly.

Pair Corralation between Essity AB and Hanza AB

Assuming the 90 days trading horizon Essity AB is expected to under-perform the Hanza AB. But the stock apears to be less risky and, when comparing its historical volatility, Essity AB is 2.74 times less risky than Hanza AB. The stock trades about -0.09 of its potential returns per unit of risk. The Hanza AB is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5,870  in Hanza AB on September 12, 2024 and sell it today you would earn a total of  995.00  from holding Hanza AB or generate 16.95% return on investment over 90 days.

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

Essity AB  vs.  Hanza AB

Essity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essity AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Essity AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hanza AB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hanza AB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Hanza AB unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Essity AB and Hanza AB

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

The idea behind Essity AB and Hanza 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.