Correlation Between Husqvarna and Kennametal

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

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

Diversification Opportunities for Husqvarna and Kennametal

-0.5

Correlation Coefficient

Husqvarna  Kennametal

Very good diversification

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

Pair Corralation between Husqvarna and Kennametal

Assuming the 90 days horizon Husqvarna AB is expected to generate 1.71 times more return on investment than Kennametal. However, Husqvarna is 1.71 times more volatile than Kennametal. It trades about -0.18 of its potential returns per unit of risk. Kennametal is currently generating about -0.7 per unit of risk. If you would invest  1,114  in Husqvarna AB on September 24, 2024 and sell it today you would lose (87.00) from holding Husqvarna AB or give up 7.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Husqvarna AB  vs.  Kennametal

Husqvarna AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Husqvarna AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Kennametal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kennametal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Kennametal is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Husqvarna and Kennametal

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

The idea behind Husqvarna AB and Kennametal 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 Transaction History module to view history of all your transactions and understand their impact on performance.