Correlation Between Cavotec SA and Trelleborg

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

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

Diversification Opportunities for Cavotec SA and Trelleborg

0.75

Correlation Coefficient

Cavotec SA  Trelleborg

Poor diversification

The 3 months correlation between Cavotec and Trelleborg is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Cavotec SA and Trelleborg AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trelleborg AB and Cavotec SA 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 Cavotec SA are associated (or correlated) with Trelleborg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trelleborg AB has no effect on the direction of Cavotec SA i.e., Cavotec SA and Trelleborg go up and down completely randomly.

Pair Corralation between Cavotec SA and Trelleborg

Assuming the 90 days trading horizon Cavotec SA is expected to generate 0.96 times more return on investment than Trelleborg. However, Cavotec SA is 1.04 times less risky than Trelleborg. It trades about 0.16 of its potential returns per unit of risk. Trelleborg AB is currently generating about 0.13 per unit of risk. If you would invest  1,550  in Cavotec SA on February 6, 2024 and sell it today you would earn a total of  75.00  from holding Cavotec SA or generate 4.84% return on investment over 90 days.

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

Cavotec SA  vs.  Trelleborg AB

Cavotec SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cavotec SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Cavotec SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Trelleborg AB

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Trelleborg AB are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Trelleborg sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cavotec SA and Trelleborg

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

The idea behind Cavotec SA and Trelleborg 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.

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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.