Correlation Between AB SKF and ABB

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

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

Diversification Opportunities for AB SKF and ABB

0.16

Correlation Coefficient

AB SKF  ABB

Average diversification

The 3 months correlation between SKF-B and ABB is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding AB SKF and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and AB SKF 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 AB SKF are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of AB SKF i.e., AB SKF and ABB go up and down completely randomly.

Pair Corralation between AB SKF and ABB

Assuming the 90 days trading horizon AB SKF is expected to generate 1.1 times more return on investment than ABB. However, AB SKF is 1.1 times more volatile than ABB. It trades about 0.17 of its potential returns per unit of risk. ABB is currently generating about 0.02 per unit of risk. If you would invest  20,140  in AB SKF on November 20, 2024 and sell it today you would earn a total of  3,350  from holding AB SKF or generate 16.63% return on investment over 90 days.

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

AB SKF  vs.  ABB

AB SKF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, AB SKF unveiled solid returns over the last few months and may actually be approaching a breakup point.

ABB

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, ABB is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AB SKF and ABB

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

The idea behind AB SKF and ABB 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 Transaction History module to view history of all your transactions and understand their impact on performance.