Correlation Between Volvo AB and Vertical Aerospace

Can any of the company-specific risk be diversified away by investing in both Volvo AB and Vertical Aerospace 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 Vertical Aerospace 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 Vertical Aerospace, you can compare the effects of market volatilities on Volvo AB and Vertical Aerospace 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 Vertical Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volvo AB and Vertical Aerospace.

Diversification Opportunities for Volvo AB and Vertical Aerospace

-0.38

Correlation Coefficient

Volvo AB  Vertical Aerospace

Very good diversification

The 3 months correlation between Volvo and Vertical is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Volvo AB ADR and Vertical Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Aerospace 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 Vertical Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertical Aerospace has no effect on the direction of Volvo AB i.e., Volvo AB and Vertical Aerospace go up and down completely randomly.

Pair Corralation between Volvo AB and Vertical Aerospace

Assuming the 90 days horizon Volvo AB is expected to generate 21.39 times less return on investment than Vertical Aerospace. But when comparing it to its historical volatility, Volvo AB ADR is 7.87 times less risky than Vertical Aerospace. It trades about 0.04 of its potential returns per unit of risk. Vertical Aerospace is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  605.00  in Vertical Aerospace on October 24, 2024 and sell it today you would earn a total of  324.00  from holding Vertical Aerospace or generate 53.55% return on investment over 90 days.

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

Volvo AB ADR  vs.  Vertical Aerospace

Volvo AB ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Volvo AB ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Vertical Aerospace

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Vertical Aerospace disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volvo AB and Vertical Aerospace

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

The idea behind Volvo AB ADR and Vertical Aerospace 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.