Correlation Between Kimberly Clark and Essity AB

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

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

Diversification Opportunities for Kimberly Clark and Essity AB

0.84

Correlation Coefficient

Kimberly Clark  Essity AB

Very poor diversification

The 3 months correlation between Kimberly and Essity is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Kimberly Clark de Mexico and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB and Kimberly Clark 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 Kimberly Clark de Mexico are associated (or correlated) with Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of Kimberly Clark i.e., Kimberly Clark and Essity AB go up and down completely randomly.

Pair Corralation between Kimberly Clark and Essity AB

Assuming the 90 days horizon Kimberly Clark de Mexico is expected to under-perform the Essity AB. But the pink sheet apears to be less risky and, when comparing its historical volatility, Kimberly Clark de Mexico is 1.42 times less risky than Essity AB. The pink sheet trades about -0.15 of its potential returns per unit of risk. The Essity AB is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  3,041  in Essity AB on September 13, 2024 and sell it today you would lose (408.00) from holding Essity AB or give up 13.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Kimberly Clark de Mexico  vs.  Essity AB

Kimberly Clark de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kimberly Clark de Mexico has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Kimberly Clark and Essity AB

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

The idea behind Kimberly Clark de Mexico and Essity 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.