Correlation Between Essity AB and Lyko Group

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

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

Diversification Opportunities for Essity AB and Lyko Group

0.62

Correlation Coefficient

Essity AB  Lyko Group

Poor diversification

The 3 months correlation between Essity and Lyko is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Essity AB and Lyko Group A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyko Group A and Essity AB 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 Essity AB are associated (or correlated) with Lyko Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyko Group A has no effect on the direction of Essity AB i.e., Essity AB and Lyko Group go up and down completely randomly.

Pair Corralation between Essity AB and Lyko Group

Assuming the 90 days trading horizon Essity AB is expected to generate 0.27 times more return on investment than Lyko Group. However, Essity AB is 3.73 times less risky than Lyko Group. It trades about 0.44 of its potential returns per unit of risk. Lyko Group A is currently generating about -0.33 per unit of risk. If you would invest  25,620  in Essity AB on February 6, 2024 and sell it today you would earn a total of  1,850  from holding Essity AB or generate 7.22% return on investment over 90 days.

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

Essity AB  vs.  Lyko Group A

Essity AB

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Essity AB are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Essity AB sustained solid returns over the last few months and may actually be approaching a breakup point.

Lyko Group A

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lyko Group A are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Lyko Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Essity AB and Lyko Group

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

The idea behind Essity AB and Lyko Group A 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.