Correlation Between Kone Oyj and SMC Corp

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

By analyzing existing cross correlation between Kone Oyj ADR and SMC Corp, you can compare the effects of market volatilities on Kone Oyj and SMC Corp 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 SMC Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kone Oyj and SMC Corp.

Diversification Opportunities for Kone Oyj and SMC Corp

0.65

Correlation Coefficient

Kone Oyj  SMC Corp

Poor diversification

The 3 months correlation between Kone and SMC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Kone Oyj ADR and SMC Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Corp 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 ADR are associated (or correlated) with SMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Corp has no effect on the direction of Kone Oyj i.e., Kone Oyj and SMC Corp go up and down completely randomly.

Pair Corralation between Kone Oyj and SMC Corp

Assuming the 90 days horizon Kone Oyj ADR is expected to generate 0.7 times more return on investment than SMC Corp. However, Kone Oyj ADR is 1.42 times less risky than SMC Corp. It trades about 0.0 of its potential returns per unit of risk. SMC Corp is currently generating about -0.01 per unit of risk. If you would invest  2,510  in Kone Oyj ADR on September 28, 2024 and sell it today you would lose (66.00) from holding Kone Oyj ADR or give up 2.63% of portfolio value over 90 days.

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

Kone Oyj ADR  vs.  SMC Corp

Kone Oyj ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kone Oyj ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's forward-looking 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.

SMC Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's fundamental 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 Kone Oyj and SMC Corp

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

The idea behind Kone Oyj ADR and SMC Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.