Correlation Between Arjo AB and Avanza Bank

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

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

Diversification Opportunities for Arjo AB and Avanza Bank

0.83

Correlation Coefficient

Arjo AB  Avanza Bank

Very poor diversification

The 3 months correlation between Arjo and Avanza is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Arjo AB and Avanza Bank Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanza Bank Holding and Arjo 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 Arjo AB are associated (or correlated) with Avanza Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanza Bank Holding has no effect on the direction of Arjo AB i.e., Arjo AB and Avanza Bank go up and down completely randomly.

Pair Corralation between Arjo AB and Avanza Bank

Assuming the 90 days trading horizon Arjo AB is expected to generate 4.88 times less return on investment than Avanza Bank. But when comparing it to its historical volatility, Arjo AB is 1.72 times less risky than Avanza Bank. It trades about 0.03 of its potential returns per unit of risk. Avanza Bank Holding is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  27,290  in Avanza Bank Holding on December 30, 2024 and sell it today you would earn a total of  3,660  from holding Avanza Bank Holding or generate 13.41% return on investment over 90 days.

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

Arjo AB  vs.  Avanza Bank Holding

Arjo AB

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arjo AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward-looking indicators, Arjo AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Avanza Bank Holding

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avanza Bank Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Avanza Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arjo AB and Avanza Bank

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

The idea behind Arjo AB and Avanza Bank Holding 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.