Correlation Between Volvo Car and Embracer Group

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

Diversification Opportunities for Volvo Car and Embracer Group

0.59

Correlation Coefficient

Volvo Car  Embracer Group

Very weak diversification

The 3 months correlation between Volvo and Embracer is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Volvo Car AB and Embracer Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embracer Group AB 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 Embracer Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embracer Group AB has no effect on the direction of Volvo Car i.e., Volvo Car and Embracer Group go up and down completely randomly.

Pair Corralation between Volvo Car and Embracer Group

Assuming the 90 days trading horizon Volvo Car AB is expected to generate 0.57 times more return on investment than Embracer Group. However, Volvo Car AB is 1.76 times less risky than Embracer Group. It trades about -0.05 of its potential returns per unit of risk. Embracer Group AB is currently generating about -0.1 per unit of risk. If you would invest  2,409  in Volvo Car AB on December 27, 2024 and sell it today you would lose (339.00) from holding Volvo Car AB or give up 14.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Volvo Car AB  vs.  Embracer Group AB

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 latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Embracer Group AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days Embracer Group AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Volvo Car and Embracer Group

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

The idea behind Volvo Car AB and Embracer Group AB 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 Commodity Directory module to find actively traded commodities issued by global exchanges.