Correlation Between Wallenstam and Hufvudstaden

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

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

Diversification Opportunities for Wallenstam and Hufvudstaden

0.95

Correlation Coefficient

Wallenstam  Hufvudstaden

Almost no diversification

The 3 months correlation between Wallenstam and Hufvudstaden is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Wallenstam AB and Hufvudstaden AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hufvudstaden AB and Wallenstam 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 Wallenstam AB are associated (or correlated) with Hufvudstaden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hufvudstaden AB has no effect on the direction of Wallenstam i.e., Wallenstam and Hufvudstaden go up and down completely randomly.

Pair Corralation between Wallenstam and Hufvudstaden

Assuming the 90 days trading horizon Wallenstam AB is expected to under-perform the Hufvudstaden. In addition to that, Wallenstam is 1.4 times more volatile than Hufvudstaden AB. It trades about -0.1 of its total potential returns per unit of risk. Hufvudstaden AB is currently generating about -0.12 per unit of volatility. If you would invest  13,640  in Hufvudstaden AB on September 12, 2024 and sell it today you would lose (1,220) from holding Hufvudstaden AB or give up 8.94% of portfolio value over 90 days.

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

Wallenstam AB  vs.  Hufvudstaden AB

Wallenstam AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wallenstam AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Hufvudstaden AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hufvudstaden AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Wallenstam and Hufvudstaden

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

The idea behind Wallenstam AB and Hufvudstaden AB 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.