Correlation Between Kinnevik Investment and OMX Stockholm

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

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

Diversification Opportunities for Kinnevik Investment and OMX Stockholm

0.49

Correlation Coefficient

Kinnevik Investment  OMX Stockholm

Very weak diversification

The 3 months correlation between Kinnevik and OMX is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Kinnevik Investment AB and OMX Stockholm Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OMX Stockholm Mid and Kinnevik Investment 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 Kinnevik Investment AB are associated (or correlated) with OMX Stockholm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OMX Stockholm Mid has no effect on the direction of Kinnevik Investment i.e., Kinnevik Investment and OMX Stockholm go up and down completely randomly.

Pair Corralation between Kinnevik Investment and OMX Stockholm

Assuming the 90 days trading horizon Kinnevik Investment AB is expected to generate 2.94 times more return on investment than OMX Stockholm. However, Kinnevik Investment is 2.94 times more volatile than OMX Stockholm Mid. It trades about 0.03 of its potential returns per unit of risk. OMX Stockholm Mid is currently generating about 0.0 per unit of risk. If you would invest  7,551  in Kinnevik Investment AB on September 4, 2024 and sell it today you would earn a total of  199.00  from holding Kinnevik Investment AB or generate 2.64% return on investment over 90 days.

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

Kinnevik Investment AB  vs.  OMX Stockholm Mid

Pair Trading with Kinnevik Investment and OMX Stockholm

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

The idea behind Kinnevik Investment AB and OMX Stockholm Mid 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.