Correlation Between ABB and Trane Technologies
Can any of the company-specific risk be diversified away by investing in both ABB and Trane Technologies 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 ABB and Trane Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABB and Trane Technologies plc, you can compare the effects of market volatilities on ABB and Trane Technologies 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 ABB with a short position of Trane Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABB and Trane Technologies.
Diversification Opportunities for ABB and Trane Technologies
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ABB and Trane is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding ABB and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc and ABB 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 ABB are associated (or correlated) with Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of ABB i.e., ABB and Trane Technologies go up and down completely randomly.
Pair Corralation between ABB and Trane Technologies
Assuming the 90 days trading horizon ABB is expected to generate 14.06 times less return on investment than Trane Technologies. In addition to that, ABB is 1.25 times more volatile than Trane Technologies plc. It trades about 0.01 of its total potential returns per unit of risk. Trane Technologies plc is currently generating about 0.21 per unit of volatility. If you would invest 36,430 in Trane Technologies plc on August 29, 2024 and sell it today you would earn a total of 3,560 from holding Trane Technologies plc or generate 9.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
ABB vs. Trane Technologies plc
Performance |
| Timeline |
| ABB |
| Trane Technologies plc |
ABB and Trane Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABB and Trane Technologies
The main advantage of trading using opposite ABB and Trane Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABB position performs unexpectedly, Trane Technologies 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 Trane Technologies will offset losses from the drop in Trane Technologies' long position.| ABB vs. Wizz Air Holdings | ABB vs. Altair Engineering | ABB vs. Enter Air SA | ABB vs. Tianjin Capital Environmental |
| Trane Technologies vs. ABB | Trane Technologies vs. Superior Plus Corp | Trane Technologies vs. NMI Holdings | Trane Technologies vs. SIVERS SEMICONDUCTORS AB |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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