Correlation Between AddLife AB and Addtech AB

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

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

Diversification Opportunities for AddLife AB and Addtech AB

0.86

Correlation Coefficient

AddLife AB  Addtech AB

Very poor diversification

The 3 months correlation between AddLife and Addtech is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding AddLife AB and Addtech AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addtech AB and AddLife AB 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 AddLife AB are associated (or correlated) with Addtech AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addtech AB has no effect on the direction of AddLife AB i.e., AddLife AB and Addtech AB go up and down completely randomly.

Pair Corralation between AddLife AB and Addtech AB

Assuming the 90 days trading horizon AddLife AB is expected to generate 1.68 times more return on investment than Addtech AB. However, AddLife AB is 1.68 times more volatile than Addtech AB. It trades about 0.15 of its potential returns per unit of risk. Addtech AB is currently generating about 0.09 per unit of risk. If you would invest  13,130  in AddLife AB on November 28, 2024 and sell it today you would earn a total of  3,210  from holding AddLife AB or generate 24.45% return on investment over 90 days.

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

AddLife AB  vs.  Addtech AB

AddLife AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AddLife AB are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, AddLife AB sustained solid returns over the last few months and may actually be approaching a breakup point.

Addtech AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Addtech AB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Addtech AB may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with AddLife AB and Addtech AB

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

The idea behind AddLife AB and Addtech AB 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.