Correlation Between NYSE Composite and Atlas Copco

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

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

Diversification Opportunities for NYSE Composite and Atlas Copco

0.57

Correlation Coefficient

NYSE Composite  Atlas Copco

Very weak diversification

The 3 months correlation between NYSE and Atlas is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Atlas Copco AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlas Copco AB and NYSE Composite 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 NYSE Composite 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 AB has no effect on the direction of NYSE Composite i.e., NYSE Composite and Atlas Copco go up and down completely randomly.

Pair Corralation between NYSE Composite and Atlas Copco

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.57 times less return on investment than Atlas Copco. But when comparing it to its historical volatility, NYSE Composite is 2.16 times less risky than Atlas Copco. It trades about 0.17 of its potential returns per unit of risk. Atlas Copco AB is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,437  in Atlas Copco AB on August 31, 2024 and sell it today you would earn a total of  139.00  from holding Atlas Copco AB or generate 9.67% return on investment over 90 days.

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

NYSE Composite  vs.  Atlas Copco AB

Pair Trading with NYSE Composite and Atlas Copco

The main advantage of trading using opposite NYSE Composite and Atlas Copco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite and Atlas Copco 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.