Correlation Between Energy and Volvo AB
Can any of the company-specific risk be diversified away by investing in both Energy and Volvo AB 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 Energy and Volvo AB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy and Water and Volvo AB ADR, you can compare the effects of market volatilities on Energy and Volvo AB 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 Energy with a short position of Volvo AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy and Volvo AB.
Diversification Opportunities for Energy and Volvo AB
Significant diversification
The 3 months correlation between Energy and Volvo is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Water and Volvo AB ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volvo AB ADR and Energy 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 Energy and Water are associated (or correlated) with Volvo AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volvo AB ADR has no effect on the direction of Energy i.e., Energy and Volvo AB go up and down completely randomly.
Pair Corralation between Energy and Volvo AB
Given the investment horizon of 90 days Energy and Water is expected to under-perform the Volvo AB. In addition to that, Energy is 6.82 times more volatile than Volvo AB ADR. It trades about -0.14 of its total potential returns per unit of risk. Volvo AB ADR is currently generating about -0.06 per unit of volatility. If you would invest 2,554 in Volvo AB ADR on September 3, 2024 and sell it today you would lose (70.00) from holding Volvo AB ADR or give up 2.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy and Water vs. Volvo AB ADR
Performance |
| Timeline |
| Energy and Water |
| Volvo AB ADR |
Energy and Volvo AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy and Volvo AB
The main advantage of trading using opposite Energy and Volvo AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy position performs unexpectedly, Volvo AB 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 Volvo AB will offset losses from the drop in Volvo AB's long position.| Energy vs. Vow ASA | Energy vs. Eestech | Energy vs. One World Universe | Energy vs. Bion Environmental Technologies |
| Volvo AB vs. TOMI Environmental Solutions | Volvo AB vs. SCOR PK | Volvo AB vs. HUMANA INC | Volvo AB vs. Aquagold International |
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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