Correlation Between Essity AB and Atlas Copco

Can any of the company-specific risk be diversified away by investing in both Essity 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 Essity 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 Essity AB and Atlas Copco AB, you can compare the effects of market volatilities on Essity 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 Essity AB with a short position of Atlas Copco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essity AB and Atlas Copco.

Diversification Opportunities for Essity AB and Atlas Copco

0.44

Correlation Coefficient

Essity AB  Atlas Copco

Very weak diversification

The 3 months correlation between Essity and Atlas is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Essity 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 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 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 Essity AB i.e., Essity AB and Atlas Copco go up and down completely randomly.

Pair Corralation between Essity AB and Atlas Copco

Assuming the 90 days trading horizon Essity AB is expected to under-perform the Atlas Copco. But the stock apears to be less risky and, when comparing its historical volatility, Essity AB is 1.44 times less risky than Atlas Copco. The stock trades about -0.11 of its potential returns per unit of risk. The Atlas Copco AB is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  15,760  in Atlas Copco AB on September 13, 2024 and sell it today you would earn a total of  135.00  from holding Atlas Copco AB or generate 0.86% return on investment over 90 days.

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

Essity AB  vs.  Atlas Copco 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 latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Atlas Copco AB

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Atlas Copco is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Essity AB and Atlas Copco

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

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.