Correlation Between Investor and 3i Group

Can any of the company-specific risk be diversified away by investing in both Investor and 3i Group 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 3i Group 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 3i Group plc, you can compare the effects of market volatilities on Investor and 3i Group 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 3i Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investor and 3i Group.

Diversification Opportunities for Investor and 3i Group

-0.34

Correlation Coefficient

Investor  3i Group

Very good diversification

The 3 months correlation between Investor and TGOPF is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB ser and 3i Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3i Group plc 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 3i Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3i Group plc has no effect on the direction of Investor i.e., Investor and 3i Group go up and down completely randomly.

Pair Corralation between Investor and 3i Group

Assuming the 90 days horizon Investor AB ser is expected to under-perform the 3i Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Investor AB ser is 1.25 times less risky than 3i Group. The pink sheet trades about -0.05 of its potential returns per unit of risk. The 3i Group plc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,126  in 3i Group plc on September 4, 2024 and sell it today you would earn a total of  640.00  from holding 3i Group plc or generate 15.51% return on investment over 90 days.

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

Investor AB ser  vs.  3i Group plc

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 nearly stable fundamental drivers, Investor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

3i Group plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 3i Group plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, 3i Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Investor and 3i Group

The main advantage of trading using opposite Investor and 3i Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investor position performs unexpectedly, 3i Group 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 3i Group will offset losses from the drop in 3i Group's long position.

The idea behind Investor AB ser and 3i Group plc 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.