Correlation Between Sinotruk and AB Volvo

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

By analyzing existing cross correlation between Sinotruk Limited and AB Volvo, you can compare the effects of market volatilities on Sinotruk and AB Volvo 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 Sinotruk with a short position of AB Volvo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sinotruk and AB Volvo.

Diversification Opportunities for Sinotruk and AB Volvo

-0.2

Correlation Coefficient

Sinotruk  AB Volvo

Good diversification

The 3 months correlation between Sinotruk and VOL3 is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Sinotruk Limited and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Sinotruk 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 Sinotruk Limited are associated (or correlated) with AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of Sinotruk i.e., Sinotruk and AB Volvo go up and down completely randomly.

Pair Corralation between Sinotruk and AB Volvo

Assuming the 90 days horizon Sinotruk Limited is expected to generate 1.92 times more return on investment than AB Volvo. However, Sinotruk is 1.92 times more volatile than AB Volvo. It trades about 0.11 of its potential returns per unit of risk. AB Volvo is currently generating about 0.08 per unit of risk. If you would invest  68.00  in Sinotruk Limited on October 7, 2024 and sell it today you would earn a total of  206.00  from holding Sinotruk Limited or generate 302.94% return on investment over 90 days.

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

Sinotruk Limited  vs.  AB Volvo

Sinotruk Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

AB Volvo

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sinotruk and AB Volvo

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

The idea behind Sinotruk Limited and AB Volvo 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 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.