Correlation Between Swiss Leader and Swatch Group

Can any of the company-specific risk be diversified away by investing in both Swiss Leader and Swatch Group 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 Swiss Leader and Swatch Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Swiss Leader Price and Swatch Group AG, you can compare the effects of market volatilities on Swiss Leader and Swatch Group 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 Swiss Leader with a short position of Swatch Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and Swatch Group.

Diversification Opportunities for Swiss Leader and Swatch Group

0.54

Correlation Coefficient

Swiss Leader  Swatch Group

Very weak diversification

The 3 months correlation between Swiss and Swatch is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and Swatch Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swatch Group AG and Swiss Leader 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 Swiss Leader Price are associated (or correlated) with Swatch Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swatch Group AG has no effect on the direction of Swiss Leader i.e., Swiss Leader and Swatch Group go up and down completely randomly.

Pair Corralation between Swiss Leader and Swatch Group

Assuming the 90 days trading horizon Swiss Leader Price is expected to under-perform the Swatch Group. But the index apears to be less risky and, when comparing its historical volatility, Swiss Leader Price is 3.76 times less risky than Swatch Group. The index trades about -0.03 of its potential returns per unit of risk. The Swatch Group AG is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  15,405  in Swatch Group AG on September 17, 2024 and sell it today you would earn a total of  615.00  from holding Swatch Group AG or generate 3.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.48%
Values	Daily Returns

Swiss Leader Price  vs.  Swatch Group AG

Pair Trading with Swiss Leader and Swatch Group

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

The idea behind Swiss Leader Price and Swatch Group AG 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.