Correlation Between Volvo Car and Traton SE

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

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

Diversification Opportunities for Volvo Car and Traton SE

-0.1

Correlation Coefficient

Volvo Car  Traton SE

Good diversification

The 3 months correlation between Volvo and Traton is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Volvo Car AB and Traton SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Traton SE and Volvo Car 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 Car AB are associated (or correlated) with Traton SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Traton SE has no effect on the direction of Volvo Car i.e., Volvo Car and Traton SE go up and down completely randomly.

Pair Corralation between Volvo Car and Traton SE

Assuming the 90 days trading horizon Volvo Car AB is expected to under-perform the Traton SE. In addition to that, Volvo Car is 1.42 times more volatile than Traton SE. It trades about -0.01 of its total potential returns per unit of risk. Traton SE is currently generating about 0.16 per unit of volatility. If you would invest  33,200  in Traton SE on December 2, 2024 and sell it today you would earn a total of  7,350  from holding Traton SE or generate 22.14% return on investment over 90 days.

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

Volvo Car AB  vs.  Traton SE

Volvo Car AB

Risk-Adjusted Performance

Very Weak

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

Traton SE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Traton SE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Traton SE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volvo Car and Traton SE

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

The idea behind Volvo Car AB and Traton SE 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.