Correlation Between Volvo Car and TF Bank

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

Diversification Opportunities for Volvo Car and TF Bank

0.34

Correlation Coefficient

Volvo Car  TF Bank

Weak diversification

The 3 months correlation between Volvo and TFBANK is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Volvo Car AB and TF Bank AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TF Bank 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 TF Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TF Bank AB has no effect on the direction of Volvo Car i.e., Volvo Car and TF Bank go up and down completely randomly.

Pair Corralation between Volvo Car and TF Bank

Assuming the 90 days trading horizon Volvo Car AB is expected to under-perform the TF Bank. In addition to that, Volvo Car is 1.23 times more volatile than TF Bank AB. It trades about -0.01 of its total potential returns per unit of risk. TF Bank AB is currently generating about 0.17 per unit of volatility. If you would invest  23,300  in TF Bank AB on November 4, 2024 and sell it today you would earn a total of  13,600  from holding TF Bank AB or generate 58.37% return on investment over 90 days.

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

Volvo Car AB  vs.  TF Bank AB

Volvo Car AB

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Volvo Car AB are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Volvo Car may actually be approaching a critical reversion point that can send shares even higher in March 2025.

TF Bank AB

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TF Bank AB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, TF Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volvo Car and TF Bank

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

The idea behind Volvo Car AB and TF Bank 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.