Correlation Between SGS SA and ABB
Can any of the company-specific risk be diversified away by investing in both SGS SA and ABB 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 SGS SA and ABB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SGS SA and ABB, you can compare the effects of market volatilities on SGS SA and ABB 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 SGS SA with a short position of ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of SGS SA and ABB.
Diversification Opportunities for SGS SA and ABB
Very good diversification
The 3 months correlation between SGS and ABB is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding SGS SA and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and SGS SA 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 SGS SA are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of SGS SA i.e., SGS SA and ABB go up and down completely randomly.
Pair Corralation between SGS SA and ABB
Assuming the 90 days trading horizon SGS SA is expected to under-perform the ABB. In addition to that, SGS SA is 1.36 times more volatile than ABB. It trades about -0.27 of its total potential returns per unit of risk. ABB is currently generating about 0.15 per unit of volatility. If you would invest 4,837 in ABB on August 25, 2024 and sell it today you would earn a total of 179.00 from holding ABB or generate 3.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
SGS SA vs. ABB
Performance |
| Timeline |
| SGS SA |
| ABB |
SGS SA and ABB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SGS SA and ABB
The main advantage of trading using opposite SGS SA and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SGS SA position performs unexpectedly, ABB 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 ABB will offset losses from the drop in ABB's long position.The idea behind SGS SA and ABB 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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