Correlation Between AB Volvo and Cavotec SA
Can any of the company-specific risk be diversified away by investing in both AB Volvo and Cavotec SA 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 Cavotec SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AB Volvo and Cavotec SA, you can compare the effects of market volatilities on AB Volvo and Cavotec SA 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 Cavotec SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of AB Volvo and Cavotec SA.
Diversification Opportunities for AB Volvo and Cavotec SA
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between VOLV-A and Cavotec is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and Cavotec SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cavotec SA 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 Cavotec SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cavotec SA has no effect on the direction of AB Volvo i.e., AB Volvo and Cavotec SA go up and down completely randomly.
Pair Corralation between AB Volvo and Cavotec SA
Assuming the 90 days trading horizon AB Volvo is expected to generate 0.62 times more return on investment than Cavotec SA. However, AB Volvo is 1.62 times less risky than Cavotec SA. It trades about 0.08 of its potential returns per unit of risk. Cavotec SA is currently generating about 0.05 per unit of risk. If you would invest 19,983 in AB Volvo on November 30, 2024 and sell it today you would earn a total of 13,197 from holding AB Volvo or generate 66.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
AB Volvo vs. Cavotec SA
Performance |
| Timeline |
| AB Volvo |
| Cavotec SA |
AB Volvo and Cavotec SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AB Volvo and Cavotec SA
The main advantage of trading using opposite AB Volvo and Cavotec SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AB Volvo position performs unexpectedly, Cavotec SA 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 Cavotec SA will offset losses from the drop in Cavotec SA'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 |
| Cavotec SA vs. Bufab Holding AB | Cavotec SA vs. Nederman Holding AB | Cavotec SA vs. COOR Service Management | Cavotec SA vs. Alimak Hek Group |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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