Correlation Between Volvo AB and Daimler Truck
Can any of the company-specific risk be diversified away by investing in both Volvo AB and Daimler Truck 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 Volvo AB and Daimler Truck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volvo AB ADR and Daimler Truck Holding, you can compare the effects of market volatilities on Volvo AB and Daimler Truck 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 Volvo AB with a short position of Daimler Truck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volvo AB and Daimler Truck.
Diversification Opportunities for Volvo AB and Daimler Truck
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Volvo and Daimler is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Volvo AB ADR and Daimler Truck Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daimler Truck Holding and Volvo 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 Volvo AB ADR are associated (or correlated) with Daimler Truck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daimler Truck Holding has no effect on the direction of Volvo AB i.e., Volvo AB and Daimler Truck go up and down completely randomly.
Pair Corralation between Volvo AB and Daimler Truck
Assuming the 90 days horizon Volvo AB ADR is expected to generate 0.81 times more return on investment than Daimler Truck. However, Volvo AB ADR is 1.23 times less risky than Daimler Truck. It trades about 0.06 of its potential returns per unit of risk. Daimler Truck Holding is currently generating about 0.03 per unit of risk. If you would invest 1,849 in Volvo AB ADR on August 31, 2024 and sell it today you would earn a total of 629.00 from holding Volvo AB ADR or generate 34.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.73% |
| Values | Daily Returns |
Volvo AB ADR vs. Daimler Truck Holding
Performance |
| Timeline |
| Volvo AB ADR |
| Daimler Truck Holding |
Volvo AB and Daimler Truck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volvo AB and Daimler Truck
The main advantage of trading using opposite Volvo AB and Daimler Truck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volvo AB position performs unexpectedly, Daimler Truck 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 Daimler Truck will offset losses from the drop in Daimler Truck's long position.| Volvo AB vs. AB Volvo | Volvo AB vs. Deere Company | Volvo AB vs. Hino Motors Ltd | Volvo AB vs. Daimler Truck Holding |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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