Correlation Between Traton SE and AB Volvo

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

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

Diversification Opportunities for Traton SE and AB Volvo

0.94

Correlation Coefficient

Traton SE  AB Volvo

Almost no diversification

The 3 months correlation between Traton and VOL1 is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Traton SE and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Traton SE 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 Traton SE 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 Traton SE i.e., Traton SE and AB Volvo go up and down completely randomly.

Pair Corralation between Traton SE and AB Volvo

Assuming the 90 days trading horizon Traton SE is expected to generate 1.21 times less return on investment than AB Volvo. In addition to that, Traton SE is 1.38 times more volatile than AB Volvo. It trades about 0.09 of its total potential returns per unit of risk. AB Volvo is currently generating about 0.16 per unit of volatility. If you would invest  2,324  in AB Volvo on December 29, 2024 and sell it today you would earn a total of  482.00  from holding AB Volvo or generate 20.74% return on investment over 90 days.

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

Traton SE  vs.  AB Volvo

Traton SE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Traton SE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Traton SE reported solid returns over the last few months and may actually be approaching a breakup point.

AB Volvo

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 12 (%) 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 Traton SE and AB Volvo

The main advantage of trading using opposite Traton SE and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Traton SE 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 Traton SE 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.