Correlation Between Gates Industrial and Sandvik AB

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

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

Diversification Opportunities for Gates Industrial and Sandvik AB

-0.78

Correlation Coefficient

Gates Industrial  Sandvik AB

Pay attention - limited upside

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

Pair Corralation between Gates Industrial and Sandvik AB

Given the investment horizon of 90 days Gates Industrial is expected to generate 0.95 times more return on investment than Sandvik AB. However, Gates Industrial is 1.05 times less risky than Sandvik AB. It trades about 0.26 of its potential returns per unit of risk. Sandvik AB ADR is currently generating about -0.03 per unit of risk. If you would invest  1,715  in Gates Industrial on September 14, 2024 and sell it today you would earn a total of  499.00  from holding Gates Industrial or generate 29.1% return on investment over 90 days.

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

Gates Industrial  vs.  Sandvik AB ADR

Gates Industrial

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gates Industrial are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Gates Industrial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sandvik AB ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandvik AB ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Sandvik AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gates Industrial and Sandvik AB

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

The idea behind Gates Industrial and Sandvik AB ADR 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.