Correlation Between Evolution and Bufab Holding

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

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

Diversification Opportunities for Evolution and Bufab Holding

-0.43

Correlation Coefficient

Evolution  Bufab Holding

Very good diversification

The 3 months correlation between Evolution and Bufab is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Evolution AB and Bufab Holding AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bufab Holding AB and Evolution 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 Evolution AB are associated (or correlated) with Bufab Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bufab Holding AB has no effect on the direction of Evolution i.e., Evolution and Bufab Holding go up and down completely randomly.

Pair Corralation between Evolution and Bufab Holding

Assuming the 90 days trading horizon Evolution AB is expected to under-perform the Bufab Holding. In addition to that, Evolution is 3.35 times more volatile than Bufab Holding AB. It trades about -0.19 of its total potential returns per unit of risk. Bufab Holding AB is currently generating about -0.38 per unit of volatility. If you would invest  45,540  in Bufab Holding AB on October 10, 2024 and sell it today you would lose (2,540) from holding Bufab Holding AB or give up 5.58% of portfolio value over 90 days.

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

Evolution AB  vs.  Bufab Holding AB

Evolution AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolution AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Bufab Holding AB

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bufab Holding AB are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Bufab Holding unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evolution and Bufab Holding

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

The idea behind Evolution AB and Bufab Holding 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.