Correlation Between Volvo AB and Daimler Truck

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

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

Diversification Opportunities for Volvo AB and Daimler Truck

0.31

Correlation Coefficient

Volvo AB  Daimler Truck

Weak diversification

The 3 months correlation between Volvo and Daimler is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Volvo AB ADR and Daimler Truck Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daimler Truck Holding and Volvo 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 Volvo AB ADR are associated (or correlated) with Daimler Truck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daimler Truck Holding has no effect on the direction of Volvo AB i.e., Volvo AB and Daimler Truck go up and down completely randomly.

Pair Corralation between Volvo AB and Daimler Truck

Assuming the 90 days horizon Volvo AB ADR is expected to generate 0.55 times more return on investment than Daimler Truck. However, Volvo AB ADR is 1.81 times less risky than Daimler Truck. It trades about 0.08 of its potential returns per unit of risk. Daimler Truck Holding is currently generating about 0.01 per unit of risk. If you would invest  2,473  in Volvo AB ADR on September 18, 2024 and sell it today you would earn a total of  44.00  from holding Volvo AB ADR or generate 1.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Volvo AB ADR  vs.  Daimler Truck Holding

Volvo AB ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Daimler Truck Holding

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Volvo AB and Daimler Truck

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

The idea behind Volvo AB ADR and Daimler Truck Holding 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.