Correlation Between AMS Small and Koninklijke Philips

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

By analyzing existing cross correlation between AMS Small Cap and Koninklijke Philips NV, you can compare the effects of market volatilities on AMS Small and Koninklijke Philips 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 AMS Small with a short position of Koninklijke Philips. Check out your portfolio center. Please also check ongoing floating volatility patterns of AMS Small and Koninklijke Philips.

Diversification Opportunities for AMS Small and Koninklijke Philips

-0.2

Correlation Coefficient

AMS Small  Koninklijke Philips

Good diversification

The 3 months correlation between AMS and Koninklijke is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and Koninklijke Philips NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke Philips and AMS Small 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 AMS Small Cap are associated (or correlated) with Koninklijke Philips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke Philips has no effect on the direction of AMS Small i.e., AMS Small and Koninklijke Philips go up and down completely randomly.

Pair Corralation between AMS Small and Koninklijke Philips

Assuming the 90 days trading horizon AMS Small Cap is expected to under-perform the Koninklijke Philips. But the index apears to be less risky and, when comparing its historical volatility, AMS Small Cap is 7.65 times less risky than Koninklijke Philips. The index trades about -0.36 of its potential returns per unit of risk. The Koninklijke Philips NV is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,902  in Koninklijke Philips NV on February 4, 2024 and sell it today you would earn a total of  602.00  from holding Koninklijke Philips NV or generate 31.65% return on investment over 90 days.

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

AMS Small Cap  vs.  Koninklijke Philips NV

Pair Trading with AMS Small and Koninklijke Philips

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

The idea behind AMS Small Cap and Koninklijke Philips NV 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.