Correlation Between Axfood AB and AB Electrolux

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Can any of the company-specific risk be diversified away by investing in both Axfood AB and AB Electrolux 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 Axfood AB and AB Electrolux into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Axfood AB and AB Electrolux, you can compare the effects of market volatilities on Axfood AB and AB Electrolux 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 Axfood AB with a short position of AB Electrolux. Check out your portfolio center. Please also check ongoing floating volatility patterns of Axfood AB and AB Electrolux.

Diversification Opportunities for Axfood AB and AB Electrolux

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Axfood and ELUX-B is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Axfood AB and AB Electrolux in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Electrolux and Axfood 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 Axfood AB are associated (or correlated) with AB Electrolux. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Electrolux has no effect on the direction of Axfood AB i.e., Axfood AB and AB Electrolux go up and down completely randomly.

Pair Corralation between Axfood AB and AB Electrolux

Assuming the 90 days trading horizon Axfood AB is expected to generate 0.67 times more return on investment than AB Electrolux. However, Axfood AB is 1.49 times less risky than AB Electrolux. It trades about -0.06 of its potential returns per unit of risk. AB Electrolux is currently generating about -0.25 per unit of risk. If you would invest  24,020  in Axfood AB on August 29, 2024 and sell it today you would lose (480.00) from holding Axfood AB or give up 2.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Axfood AB  vs.  AB Electrolux

 Performance 
       Timeline  
Axfood AB 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Axfood AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.
AB Electrolux 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days AB Electrolux has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Axfood AB and AB Electrolux Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Axfood AB and AB Electrolux

The main advantage of trading using opposite Axfood AB and AB Electrolux positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Axfood AB position performs unexpectedly, AB Electrolux 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 Electrolux will offset losses from the drop in AB Electrolux's long position.
The idea behind Axfood AB and AB Electrolux 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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