Correlation Between Sika AG and Victrex Plc

Can any of the company-specific risk be diversified away by investing in both Sika AG and Victrex Plc 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 Sika AG and Victrex Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sika AG and Victrex plc, you can compare the effects of market volatilities on Sika AG and Victrex Plc 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 Sika AG with a short position of Victrex Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sika AG and Victrex Plc.

Diversification Opportunities for Sika AG and Victrex Plc

0.75

Correlation Coefficient

Sika AG  Victrex Plc

Poor diversification

The 3 months correlation between Sika and Victrex is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Sika AG and Victrex plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Victrex plc and Sika AG 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 Sika AG are associated (or correlated) with Victrex Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Victrex plc has no effect on the direction of Sika AG i.e., Sika AG and Victrex Plc go up and down completely randomly.

Pair Corralation between Sika AG and Victrex Plc

Assuming the 90 days horizon Sika AG is expected to under-perform the Victrex Plc. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sika AG is 1.6 times less risky than Victrex Plc. The pink sheet trades about -0.18 of its potential returns per unit of risk. The Victrex plc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,390  in Victrex plc on September 27, 2024 and sell it today you would lose (66.00) from holding Victrex plc or give up 4.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Sika AG  vs.  Victrex plc

Sika AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sika AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Victrex plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sika AG and Victrex Plc

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

The idea behind Sika AG and Victrex plc 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.