Correlation Between Auto Trader and Swedish Orphan

Can any of the company-specific risk be diversified away by investing in both Auto Trader and Swedish Orphan 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 Auto Trader and Swedish Orphan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Auto Trader Group and Swedish Orphan Biovitrum, you can compare the effects of market volatilities on Auto Trader and Swedish Orphan 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 Auto Trader with a short position of Swedish Orphan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Swedish Orphan.

Diversification Opportunities for Auto Trader and Swedish Orphan

0.05

Correlation Coefficient

Auto Trader  Swedish Orphan

Significant diversification

The 3 months correlation between Auto and Swedish is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Swedish Orphan Biovitrum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swedish Orphan Biovitrum and Auto Trader 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 Auto Trader Group are associated (or correlated) with Swedish Orphan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swedish Orphan Biovitrum has no effect on the direction of Auto Trader i.e., Auto Trader and Swedish Orphan go up and down completely randomly.

Pair Corralation between Auto Trader and Swedish Orphan

Assuming the 90 days trading horizon Auto Trader Group is expected to under-perform the Swedish Orphan. But the stock apears to be less risky and, when comparing its historical volatility, Auto Trader Group is 1.61 times less risky than Swedish Orphan. The stock trades about -0.08 of its potential returns per unit of risk. The Swedish Orphan Biovitrum is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,686  in Swedish Orphan Biovitrum on December 21, 2024 and sell it today you would lose (74.00) from holding Swedish Orphan Biovitrum or give up 2.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Auto Trader Group  vs.  Swedish Orphan Biovitrum

Auto Trader Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Auto Trader is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Swedish Orphan Biovitrum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Swedish Orphan Biovitrum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Swedish Orphan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Auto Trader and Swedish Orphan

The main advantage of trading using opposite Auto Trader and Swedish Orphan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader position performs unexpectedly, Swedish Orphan 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 Swedish Orphan will offset losses from the drop in Swedish Orphan's long position.

The idea behind Auto Trader Group and Swedish Orphan Biovitrum 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.

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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.