Correlation Between Momentum Group and Divio Technologies

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

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

Diversification Opportunities for Momentum Group and Divio Technologies

0.09

Correlation Coefficient

Momentum Group  Divio Technologies

Significant diversification

The 3 months correlation between Momentum and Divio is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Momentum Group AB and Divio Technologies AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Divio Technologies and Momentum Group 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 Momentum Group AB are associated (or correlated) with Divio Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Divio Technologies has no effect on the direction of Momentum Group i.e., Momentum Group and Divio Technologies go up and down completely randomly.

Pair Corralation between Momentum Group and Divio Technologies

Assuming the 90 days trading horizon Momentum Group is expected to generate 23.23 times less return on investment than Divio Technologies. But when comparing it to its historical volatility, Momentum Group AB is 6.73 times less risky than Divio Technologies. It trades about 0.02 of its potential returns per unit of risk. Divio Technologies AB is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Divio Technologies AB on September 25, 2024 and sell it today you would earn a total of  3.00  from holding Divio Technologies AB or generate 27.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.22%
Values	Daily Returns

Momentum Group AB  vs.  Divio Technologies AB

Momentum Group AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Divio Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Divio Technologies 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 forward 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 Momentum Group and Divio Technologies

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

The idea behind Momentum Group AB and Divio Technologies 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.