Correlation Between ABB and Alfen NV

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

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

Diversification Opportunities for ABB and Alfen NV

0.08

Correlation Coefficient

ABB  Alfen NV

Significant diversification

The 3 months correlation between ABB and Alfen is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding ABB and Alfen NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfen NV and ABB 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 ABB are associated (or correlated) with Alfen NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfen NV has no effect on the direction of ABB i.e., ABB and Alfen NV go up and down completely randomly.

Pair Corralation between ABB and Alfen NV

Assuming the 90 days horizon ABB is expected to generate 1.16 times more return on investment than Alfen NV. However, ABB is 1.16 times more volatile than Alfen NV. It trades about 0.01 of its potential returns per unit of risk. Alfen NV is currently generating about -0.18 per unit of risk. If you would invest  5,809  in ABB on September 2, 2024 and sell it today you would lose (81.00) from holding ABB or give up 1.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

ABB  vs.  Alfen NV

ABB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Alfen NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alfen NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with ABB and Alfen NV

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

The idea behind ABB and Alfen NV 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.