Correlation Between Swedbank and AB Volvo

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

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

Diversification Opportunities for Swedbank and AB Volvo

0.33

Correlation Coefficient

Swedbank  AB Volvo

Weak diversification

The 3 months correlation between Swedbank and VOLV-B is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Swedbank AB and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Swedbank 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 Swedbank AB are associated (or correlated) with AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of Swedbank i.e., Swedbank and AB Volvo go up and down completely randomly.

Pair Corralation between Swedbank and AB Volvo

Assuming the 90 days trading horizon Swedbank is expected to generate 7.76 times less return on investment than AB Volvo. But when comparing it to its historical volatility, Swedbank AB is 1.07 times less risky than AB Volvo. It trades about 0.02 of its potential returns per unit of risk. AB Volvo is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  25,430  in AB Volvo on September 14, 2024 and sell it today you would earn a total of  2,870  from holding AB Volvo or generate 11.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Swedbank AB  vs.  AB Volvo

Swedbank AB

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swedbank AB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Swedbank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

AB Volvo

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, AB Volvo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Swedbank and AB Volvo

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

The idea behind Swedbank AB and AB Volvo 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..