Correlation Between Prevas AB and Transtema Group

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

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

Diversification Opportunities for Prevas AB and Transtema Group

-0.59

Correlation Coefficient

Prevas AB  Transtema Group

Excellent diversification

The 3 months correlation between Prevas and Transtema is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Prevas AB and Transtema Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transtema Group AB and Prevas 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 Prevas AB are associated (or correlated) with Transtema Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transtema Group AB has no effect on the direction of Prevas AB i.e., Prevas AB and Transtema Group go up and down completely randomly.

Pair Corralation between Prevas AB and Transtema Group

Assuming the 90 days trading horizon Prevas AB is expected to generate 0.73 times more return on investment than Transtema Group. However, Prevas AB is 1.37 times less risky than Transtema Group. It trades about 0.01 of its potential returns per unit of risk. Transtema Group AB is currently generating about -0.04 per unit of risk. If you would invest  12,224  in Prevas AB on October 9, 2024 and sell it today you would lose (504.00) from holding Prevas AB or give up 4.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Prevas AB  vs.  Transtema Group AB

Prevas AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Transtema Group AB

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transtema Group AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Transtema Group is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Prevas AB and Transtema Group

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

The idea behind Prevas AB and Transtema Group 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.