Correlation Between Traton SE and AB SKF
Can any of the company-specific risk be diversified away by investing in both Traton SE and AB SKF 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 Traton SE and AB SKF into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Traton SE and AB SKF, you can compare the effects of market volatilities on Traton SE and AB SKF 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 Traton SE with a short position of AB SKF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Traton SE and AB SKF.
Diversification Opportunities for Traton SE and AB SKF
Poor diversification
The 3 months correlation between Traton and SKF-B is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Traton SE and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF and Traton SE 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 Traton SE are associated (or correlated) with AB SKF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB SKF has no effect on the direction of Traton SE i.e., Traton SE and AB SKF go up and down completely randomly.
Pair Corralation between Traton SE and AB SKF
Assuming the 90 days trading horizon Traton SE is expected to generate 1.31 times more return on investment than AB SKF. However, Traton SE is 1.31 times more volatile than AB SKF. It trades about 0.08 of its potential returns per unit of risk. AB SKF is currently generating about 0.03 per unit of risk. If you would invest 23,283 in Traton SE on September 3, 2024 and sell it today you would earn a total of 9,917 from holding Traton SE or generate 42.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Traton SE vs. AB SKF
Performance |
| Timeline |
| Traton SE |
| AB SKF |
Traton SE and AB SKF Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Traton SE and AB SKF
The main advantage of trading using opposite Traton SE and AB SKF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Traton SE position performs unexpectedly, AB SKF 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 AB SKF will offset losses from the drop in AB SKF's long position.The idea behind Traton SE and AB SKF 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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