Correlation Between AB Volvo and Fast Retailing

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

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

Diversification Opportunities for AB Volvo and Fast Retailing

0.12

Correlation Coefficient

AB Volvo  Fast Retailing

Average diversification

The 3 months correlation between VOL1 and Fast is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and Fast Retailing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fast Retailing and AB Volvo 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 Volvo are associated (or correlated) with Fast Retailing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fast Retailing has no effect on the direction of AB Volvo i.e., AB Volvo and Fast Retailing go up and down completely randomly.

Pair Corralation between AB Volvo and Fast Retailing

Assuming the 90 days trading horizon AB Volvo is expected to generate 1.71 times more return on investment than Fast Retailing. However, AB Volvo is 1.71 times more volatile than Fast Retailing Co. It trades about 0.1 of its potential returns per unit of risk. Fast Retailing Co is currently generating about 0.07 per unit of risk. If you would invest  716.00  in AB Volvo on October 10, 2024 and sell it today you would earn a total of  1,761  from holding AB Volvo or generate 245.95% return on investment over 90 days.

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

AB Volvo  vs.  Fast Retailing Co

AB Volvo

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, AB Volvo is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Fast Retailing

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Fast Retailing is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AB Volvo and Fast Retailing

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

The idea behind AB Volvo and Fast Retailing Co 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.