Correlation Between MidCap Financial and AB Volvo

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

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

Diversification Opportunities for MidCap Financial and AB Volvo

0.09

Correlation Coefficient

MidCap Financial  AB Volvo

Significant diversification

The 3 months correlation between MidCap and VOL3 is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and MidCap Financial 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 MidCap Financial Investment 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 MidCap Financial i.e., MidCap Financial and AB Volvo go up and down completely randomly.

Pair Corralation between MidCap Financial and AB Volvo

Assuming the 90 days trading horizon MidCap Financial Investment is expected to under-perform the AB Volvo. But the stock apears to be less risky and, when comparing its historical volatility, MidCap Financial Investment is 1.57 times less risky than AB Volvo. The stock trades about -0.07 of its potential returns per unit of risk. The AB Volvo is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,334  in AB Volvo on December 22, 2024 and sell it today you would earn a total of  542.00  from holding AB Volvo or generate 23.22% return on investment over 90 days.

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

MidCap Financial Investment  vs.  AB Volvo

MidCap Financial Inv

Risk-Adjusted Performance

Very Weak

Over the last 90 days MidCap Financial Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, MidCap Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

AB Volvo

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, AB Volvo reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MidCap Financial and AB Volvo

The main advantage of trading using opposite MidCap Financial and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MidCap Financial 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 MidCap Financial Investment 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.