Correlation Between Atlas Copco and THK Co

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

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

Diversification Opportunities for Atlas Copco and THK Co

0.61

Correlation Coefficient

Atlas Copco  THK Co

Poor diversification

The 3 months correlation between Atlas and THK is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Copco AB and THK Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THK Co and Atlas Copco 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 Atlas Copco AB are associated (or correlated) with THK Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THK Co has no effect on the direction of Atlas Copco i.e., Atlas Copco and THK Co go up and down completely randomly.

Pair Corralation between Atlas Copco and THK Co

Assuming the 90 days horizon Atlas Copco AB is expected to generate 1.6 times more return on investment than THK Co. However, Atlas Copco is 1.6 times more volatile than THK Co Ltd. It trades about 0.3 of its potential returns per unit of risk. THK Co Ltd is currently generating about -0.16 per unit of risk. If you would invest  1,291  in Atlas Copco AB on February 1, 2024 and sell it today you would earn a total of  244.00  from holding Atlas Copco AB or generate 18.9% return on investment over 90 days.

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

Atlas Copco AB  vs.  THK Co Ltd

Atlas Copco AB

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Atlas Copco reported solid returns over the last few months and may actually be approaching a breakup point.

THK Co

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in THK Co Ltd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, THK Co showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Atlas Copco and THK Co

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

The idea behind Atlas Copco AB and THK Co Ltd 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.