Correlation Between ALM Equity and Studsvik

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

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

Diversification Opportunities for ALM Equity and Studsvik

0.75

Correlation Coefficient

ALM Equity  Studsvik

Poor diversification

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

Pair Corralation between ALM Equity and Studsvik

Assuming the 90 days trading horizon ALM Equity is expected to generate 7.77 times less return on investment than Studsvik. But when comparing it to its historical volatility, ALM Equity AB is 6.67 times less risky than Studsvik. It trades about 0.16 of its potential returns per unit of risk. Studsvik AB is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  12,950  in Studsvik AB on April 24, 2025 and sell it today you would earn a total of  6,050  from holding Studsvik AB or generate 46.72% return on investment over 90 days.

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

ALM Equity AB  vs.  Studsvik AB

ALM Equity AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ALM Equity AB are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ALM Equity is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Studsvik AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Studsvik AB are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Studsvik unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ALM Equity and Studsvik

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

The idea behind ALM Equity AB and Studsvik 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.