Correlation Between AB Volvo and ABB
Can any of the company-specific risk be diversified away by investing in both AB Volvo 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 AB Volvo and ABB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AB Volvo and ABB, you can compare the effects of market volatilities on AB Volvo 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 AB Volvo with a short position of ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of AB Volvo and ABB.
Diversification Opportunities for AB Volvo and ABB
Poor diversification
The 3 months correlation between VOLV-A and ABB is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and AB Volvo 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 AB Volvo 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 AB Volvo i.e., AB Volvo and ABB go up and down completely randomly.
Pair Corralation between AB Volvo and ABB
Assuming the 90 days trading horizon AB Volvo is expected to under-perform the ABB. In addition to that, AB Volvo is 1.55 times more volatile than ABB. It trades about -0.05 of its total potential returns per unit of risk. ABB is currently generating about 0.19 per unit of volatility. If you would invest 59,300 in ABB on September 1, 2024 and sell it today you would earn a total of 2,660 from holding ABB or generate 4.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
AB Volvo vs. ABB
Performance |
| Timeline |
| AB Volvo |
| ABB |
AB Volvo and ABB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AB Volvo and ABB
The main advantage of trading using opposite AB Volvo and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AB Volvo 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.| AB Volvo vs. Investor AB ser | AB Volvo vs. Sandvik AB | AB Volvo vs. Svenska Handelsbanken AB | AB Volvo vs. Atlas Copco AB |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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