Correlation Between Investor and Investment

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

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

Diversification Opportunities for Investor and Investment

0.56

Correlation Coefficient

Investor  Investment

Very weak diversification

The 3 months correlation between Investor and Investment is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB ser and Investment AB Latour in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment AB Latour and Investor 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 Investor AB ser are associated (or correlated) with Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment AB Latour has no effect on the direction of Investor i.e., Investor and Investment go up and down completely randomly.

Pair Corralation between Investor and Investment

Assuming the 90 days trading horizon Investor AB ser is expected to generate 0.63 times more return on investment than Investment. However, Investor AB ser is 1.58 times less risky than Investment. It trades about -0.02 of its potential returns per unit of risk. Investment AB Latour is currently generating about -0.14 per unit of risk. If you would invest  30,171  in Investor AB ser on September 3, 2024 and sell it today you would lose (441.00) from holding Investor AB ser or give up 1.46% of portfolio value over 90 days.

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

Investor AB ser  vs.  Investment AB Latour

Investor AB ser

Risk-Adjusted Performance

0 of 100

Very Weak

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

Investment AB Latour

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investment AB Latour has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Investor and Investment

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

The idea behind Investor AB ser and Investment AB Latour 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.