Correlation Between Ekobot AB and AB Volvo

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

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

Diversification Opportunities for Ekobot AB and AB Volvo

-0.43

Correlation Coefficient

Ekobot AB  AB Volvo

Very good diversification

The 3 months correlation between Ekobot and VOLV-A is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ekobot AB and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Ekobot 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 Ekobot AB 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 Ekobot AB i.e., Ekobot AB and AB Volvo go up and down completely randomly.

Pair Corralation between Ekobot AB and AB Volvo

Assuming the 90 days trading horizon Ekobot AB is expected to under-perform the AB Volvo. In addition to that, Ekobot AB is 6.54 times more volatile than AB Volvo. It trades about -0.04 of its total potential returns per unit of risk. AB Volvo is currently generating about 0.06 per unit of volatility. If you would invest  19,005  in AB Volvo on September 2, 2024 and sell it today you would earn a total of  8,295  from holding AB Volvo or generate 43.65% return on investment over 90 days.

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

Ekobot AB  vs.  AB Volvo

Ekobot AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ekobot AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat 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.

AB Volvo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AB Volvo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, AB Volvo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ekobot AB and AB Volvo

The main advantage of trading using opposite Ekobot AB and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ekobot AB 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 Ekobot AB 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.