Correlation Between Sandvik AB and Wartsila Oyj

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

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

Diversification Opportunities for Sandvik AB and Wartsila Oyj

0.8

Correlation Coefficient

Sandvik AB  Wartsila Oyj

Very poor diversification

The 3 months correlation between Sandvik and Wartsila is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sandvik AB ADR and Wartsila Oyj Abp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wartsila Oyj Abp and Sandvik AB 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 Sandvik AB ADR are associated (or correlated) with Wartsila Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wartsila Oyj Abp has no effect on the direction of Sandvik AB i.e., Sandvik AB and Wartsila Oyj go up and down completely randomly.

Pair Corralation between Sandvik AB and Wartsila Oyj

Assuming the 90 days horizon Sandvik AB ADR is expected to generate 0.57 times more return on investment than Wartsila Oyj. However, Sandvik AB ADR is 1.75 times less risky than Wartsila Oyj. It trades about 0.0 of its potential returns per unit of risk. Wartsila Oyj Abp is currently generating about -0.07 per unit of risk. If you would invest  1,989  in Sandvik AB ADR on September 12, 2024 and sell it today you would lose (24.00) from holding Sandvik AB ADR or give up 1.21% of portfolio value over 90 days.

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

Sandvik AB ADR  vs.  Wartsila Oyj Abp

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

Wartsila Oyj Abp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wartsila Oyj Abp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers 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.

Pair Trading with Sandvik AB and Wartsila Oyj

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

The idea behind Sandvik AB ADR and Wartsila Oyj Abp 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.