Correlation Between Epiroc AB and Volvo AB

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

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

Diversification Opportunities for Epiroc AB and Volvo AB

0.83

Correlation Coefficient

Epiroc AB  Volvo AB

Very poor diversification

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

Pair Corralation between Epiroc AB and Volvo AB

Assuming the 90 days horizon Epiroc AB is expected to generate 1.21 times less return on investment than Volvo AB. But when comparing it to its historical volatility, Epiroc AB is 1.24 times less risky than Volvo AB. It trades about 0.17 of its potential returns per unit of risk. Volvo AB ser is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,430  in Volvo AB ser on December 28, 2024 and sell it today you would earn a total of  580.00  from holding Volvo AB ser or generate 23.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Epiroc AB  vs.  Volvo AB ser

Epiroc AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Epiroc AB are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward-looking signals, Epiroc AB showed solid returns over the last few months and may actually be approaching a breakup point.

Volvo AB ser

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volvo AB ser are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Volvo AB reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Epiroc AB and Volvo AB

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

The idea behind Epiroc AB and Volvo AB ser 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.