Correlation Between Troax Group and AB Volvo

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

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

Diversification Opportunities for Troax Group and AB Volvo

0.61

Correlation Coefficient

Troax Group  AB Volvo

Poor diversification

The 3 months correlation between Troax and VOLV-A is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Troax Group AB and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Troax 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 Troax Group 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 Troax Group i.e., Troax Group and AB Volvo go up and down completely randomly.

Pair Corralation between Troax Group and AB Volvo

Assuming the 90 days trading horizon Troax Group AB is expected to generate 1.38 times more return on investment than AB Volvo. However, Troax Group is 1.38 times more volatile than AB Volvo. It trades about 0.06 of its potential returns per unit of risk. AB Volvo is currently generating about -0.03 per unit of risk. If you would invest  21,550  in Troax Group AB on September 26, 2024 and sell it today you would earn a total of  1,250  from holding Troax Group AB or generate 5.8% return on investment over 90 days.

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

Troax Group AB  vs.  AB Volvo

Troax Group AB

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Troax Group AB are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Troax Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AB Volvo

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Troax Group and AB Volvo

The main advantage of trading using opposite Troax Group and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Troax Group 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 Troax Group 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.