Correlation Between Ellwee AB and Volvo Car

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

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

Diversification Opportunities for Ellwee AB and Volvo Car

0.81

Correlation Coefficient

Ellwee AB  Volvo Car

Very poor diversification

The 3 months correlation between Ellwee and Volvo is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Ellwee AB and Volvo Car AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volvo Car AB and Ellwee 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 Ellwee AB are associated (or correlated) with Volvo Car. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volvo Car AB has no effect on the direction of Ellwee AB i.e., Ellwee AB and Volvo Car go up and down completely randomly.

Pair Corralation between Ellwee AB and Volvo Car

Assuming the 90 days trading horizon Ellwee AB is expected to under-perform the Volvo Car. But the stock apears to be less risky and, when comparing its historical volatility, Ellwee AB is 1.14 times less risky than Volvo Car. The stock trades about -0.11 of its potential returns per unit of risk. The Volvo Car AB is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,808  in Volvo Car AB on September 3, 2024 and sell it today you would lose (435.00) from holding Volvo Car AB or give up 15.49% of portfolio value over 90 days.

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

Ellwee AB  vs.  Volvo Car AB

Ellwee AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ellwee AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential 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.

Volvo Car AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volvo Car AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain 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.

Pair Trading with Ellwee AB and Volvo Car

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

The idea behind Ellwee AB and Volvo Car 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.