Correlation Between KONE Oyj and Atlas Copco

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

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

Diversification Opportunities for KONE Oyj and Atlas Copco

0.75

Correlation Coefficient

KONE Oyj  Atlas Copco

Poor diversification

The 3 months correlation between KONE and Atlas is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding KONE Oyj and Atlas Copco ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco ADR and KONE Oyj 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 KONE Oyj 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 ADR has no effect on the direction of KONE Oyj i.e., KONE Oyj and Atlas Copco go up and down completely randomly.

Pair Corralation between KONE Oyj and Atlas Copco

Assuming the 90 days horizon KONE Oyj is expected to under-perform the Atlas Copco. But the pink sheet apears to be less risky and, when comparing its historical volatility, KONE Oyj is 1.19 times less risky than Atlas Copco. The pink sheet trades about -0.16 of its potential returns per unit of risk. The Atlas Copco ADR is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,478  in Atlas Copco ADR on September 12, 2024 and sell it today you would lose (40.00) from holding Atlas Copco ADR or give up 2.71% of portfolio value over 90 days.

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

KONE Oyj  vs.  Atlas Copco ADR

KONE Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KONE Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, KONE Oyj is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Atlas Copco ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with KONE Oyj and Atlas Copco

The main advantage of trading using opposite KONE Oyj and Atlas Copco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KONE Oyj 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 KONE Oyj and Atlas Copco 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.