Correlation Between Svenska Handelsbanken and Agricultural Bank

Can any of the company-specific risk be diversified away by investing in both Svenska Handelsbanken and Agricultural Bank 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 Svenska Handelsbanken and Agricultural Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Svenska Handelsbanken PK and Agricultural Bank, you can compare the effects of market volatilities on Svenska Handelsbanken and Agricultural Bank 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 Svenska Handelsbanken with a short position of Agricultural Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Svenska Handelsbanken and Agricultural Bank.

Diversification Opportunities for Svenska Handelsbanken and Agricultural Bank

0.31

Correlation Coefficient

Svenska Handelsbanken  Agricultural Bank

Weak diversification

The 3 months correlation between Svenska and Agricultural is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Svenska Handelsbanken PK and Agricultural Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agricultural Bank and Svenska Handelsbanken 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 Svenska Handelsbanken PK are associated (or correlated) with Agricultural Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agricultural Bank has no effect on the direction of Svenska Handelsbanken i.e., Svenska Handelsbanken and Agricultural Bank go up and down completely randomly.

Pair Corralation between Svenska Handelsbanken and Agricultural Bank

Assuming the 90 days horizon Svenska Handelsbanken is expected to generate 3.96 times less return on investment than Agricultural Bank. But when comparing it to its historical volatility, Svenska Handelsbanken PK is 2.16 times less risky than Agricultural Bank. It trades about 0.05 of its potential returns per unit of risk. Agricultural Bank is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Agricultural Bank on September 6, 2024 and sell it today you would earn a total of  8.00  from holding Agricultural Bank or generate 19.05% return on investment over 90 days.

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

Svenska Handelsbanken PK  vs.  Agricultural Bank

Svenska Handelsbanken

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Svenska Handelsbanken PK are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Svenska Handelsbanken is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Agricultural Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Agricultural Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Agricultural Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Svenska Handelsbanken and Agricultural Bank

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

The idea behind Svenska Handelsbanken PK and Agricultural Bank 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.