Correlation Between Trane Technologies and ABB
Can any of the company-specific risk be diversified away by investing in both Trane Technologies and ABB 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 Trane Technologies and ABB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Trane Technologies plc and ABB, you can compare the effects of market volatilities on Trane Technologies and ABB 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 Trane Technologies with a short position of ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trane Technologies and ABB.
Diversification Opportunities for Trane Technologies and ABB
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Trane and ABB is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Trane Technologies 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 Trane Technologies plc are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Trane Technologies i.e., Trane Technologies and ABB go up and down completely randomly.
Pair Corralation between Trane Technologies and ABB
Assuming the 90 days horizon Trane Technologies plc is expected to generate 0.83 times more return on investment than ABB. However, Trane Technologies plc is 1.2 times less risky than ABB. It trades about 0.22 of its potential returns per unit of risk. ABB is currently generating about 0.05 per unit of risk. If you would invest 36,300 in Trane Technologies plc on August 30, 2024 and sell it today you would earn a total of 3,690 from holding Trane Technologies plc or generate 10.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Trane Technologies plc vs. ABB
Performance |
| Timeline |
| Trane Technologies plc |
| ABB |
Trane Technologies and ABB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Trane Technologies and ABB
The main advantage of trading using opposite Trane Technologies and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies position performs unexpectedly, ABB 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 ABB will offset losses from the drop in ABB's long position.| Trane Technologies vs. ABB | Trane Technologies vs. Superior Plus Corp | Trane Technologies vs. NMI Holdings | Trane Technologies vs. SIVERS SEMICONDUCTORS AB |
| ABB vs. Wizz Air Holdings | ABB vs. Altair Engineering | ABB vs. Enter Air SA | ABB vs. Tianjin Capital Environmental |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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