Correlation Between Daimler Truck and AB Volvo
Can any of the company-specific risk be diversified away by investing in both Daimler Truck and AB Volvo 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 Daimler Truck and AB Volvo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Daimler Truck Holding and AB Volvo, you can compare the effects of market volatilities on Daimler Truck and AB Volvo 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 Daimler Truck with a short position of AB Volvo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daimler Truck and AB Volvo.
Diversification Opportunities for Daimler Truck and AB Volvo
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Daimler and VOL1 is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Daimler Truck Holding and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Daimler Truck 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 Daimler Truck Holding are associated (or correlated) with AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of Daimler Truck i.e., Daimler Truck and AB Volvo go up and down completely randomly.
Pair Corralation between Daimler Truck and AB Volvo
Assuming the 90 days trading horizon Daimler Truck is expected to generate 2.99 times less return on investment than AB Volvo. But when comparing it to its historical volatility, Daimler Truck Holding is 1.56 times less risky than AB Volvo. It trades about 0.04 of its potential returns per unit of risk. AB Volvo is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,393 in AB Volvo on September 2, 2024 and sell it today you would earn a total of 954.00 from holding AB Volvo or generate 68.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Daimler Truck Holding vs. AB Volvo
Performance |
| Timeline |
| Daimler Truck Holding |
| AB Volvo |
Daimler Truck and AB Volvo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Daimler Truck and AB Volvo
The main advantage of trading using opposite Daimler Truck and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daimler Truck position performs unexpectedly, AB Volvo 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 Volvo will offset losses from the drop in AB Volvo's long position.The idea behind Daimler Truck Holding and AB Volvo 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.| AB Volvo vs. Flutter Entertainment PLC | AB Volvo vs. Natural Health Trends | AB Volvo vs. ATRYS HEALTH SA | AB Volvo vs. Live Nation Entertainment |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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