Correlation Between AB Volvo and Sinotruk

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

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

Diversification Opportunities for AB Volvo and Sinotruk

-0.2

Correlation Coefficient

AB Volvo  Sinotruk

Good diversification

The 3 months correlation between VOL3 and Sinotruk is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and Sinotruk Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinotruk Limited 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 Sinotruk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinotruk Limited has no effect on the direction of AB Volvo i.e., AB Volvo and Sinotruk go up and down completely randomly.

Pair Corralation between AB Volvo and Sinotruk

Assuming the 90 days trading horizon AB Volvo is expected to generate 2.82 times less return on investment than Sinotruk. But when comparing it to its historical volatility, AB Volvo is 1.92 times less risky than Sinotruk. It trades about 0.08 of its potential returns per unit of risk. Sinotruk Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  68.00  in Sinotruk Limited on October 7, 2024 and sell it today you would earn a total of  206.00  from holding Sinotruk Limited or generate 302.94% return on investment over 90 days.

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

AB Volvo  vs.  Sinotruk Limited

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 nearly stable essential indicators, AB Volvo is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sinotruk Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sinotruk Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sinotruk is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AB Volvo and Sinotruk

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

The idea behind AB Volvo and Sinotruk Limited 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 Global Correlations module to find global opportunities by holding instruments from different markets.