Correlation Between SWK Holdings and Axalta Coating

Can any of the company-specific risk be diversified away by investing in both SWK Holdings and Axalta Coating 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 SWK Holdings and Axalta Coating into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SWK Holdings and Axalta Coating Systems, you can compare the effects of market volatilities on SWK Holdings and Axalta Coating 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 SWK Holdings with a short position of Axalta Coating. Check out your portfolio center. Please also check ongoing floating volatility patterns of SWK Holdings and Axalta Coating.

Diversification Opportunities for SWK Holdings and Axalta Coating

0.5

Correlation Coefficient

SWK Holdings  Axalta Coating

Very weak diversification

The 3 months correlation between SWK and Axalta is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding SWK Holdings and Axalta Coating Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axalta Coating Systems and SWK Holdings 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 SWK Holdings are associated (or correlated) with Axalta Coating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axalta Coating Systems has no effect on the direction of SWK Holdings i.e., SWK Holdings and Axalta Coating go up and down completely randomly.

Pair Corralation between SWK Holdings and Axalta Coating

Assuming the 90 days horizon SWK Holdings is expected to generate 2.38 times less return on investment than Axalta Coating. But when comparing it to its historical volatility, SWK Holdings is 3.68 times less risky than Axalta Coating. It trades about 0.09 of its potential returns per unit of risk. Axalta Coating Systems is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,100  in Axalta Coating Systems on September 14, 2024 and sell it today you would earn a total of  717.00  from holding Axalta Coating Systems or generate 23.13% return on investment over 90 days.

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

SWK Holdings  vs.  Axalta Coating Systems

SWK Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SWK Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical indicators, SWK Holdings is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Axalta Coating Systems

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Axalta Coating Systems are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Axalta Coating may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SWK Holdings and Axalta Coating

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

The idea behind SWK Holdings and Axalta Coating Systems 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 Global Correlations module to find global opportunities by holding instruments from different markets.