Correlation Between Nordex SE and Sandvik AB

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

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

Diversification Opportunities for Nordex SE and Sandvik AB

0.62

Correlation Coefficient

Nordex SE  Sandvik AB

Poor diversification

The 3 months correlation between Nordex and Sandvik is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Nordex SE 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 Nordex SE 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 Nordex SE 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 Nordex SE i.e., Nordex SE and Sandvik AB go up and down completely randomly.

Pair Corralation between Nordex SE and Sandvik AB

Assuming the 90 days horizon Nordex SE is expected to under-perform the Sandvik AB. But the pink sheet apears to be less risky and, when comparing its historical volatility, Nordex SE is 1.95 times less risky than Sandvik AB. The pink sheet trades about -0.09 of its potential returns per unit of risk. The Sandvik AB ADR is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,970  in Sandvik AB ADR on September 5, 2024 and sell it today you would lose (98.00) from holding Sandvik AB ADR or give up 4.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Nordex SE  vs.  Sandvik AB ADR

Nordex SE

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nordex SE and Sandvik AB

The main advantage of trading using opposite Nordex SE and Sandvik AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nordex SE 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 Nordex SE 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.