Correlation Between AB Volvo and Flex LNG

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

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

Diversification Opportunities for AB Volvo and Flex LNG

-0.68

Correlation Coefficient

AB Volvo  Flex LNG

Excellent diversification

The 3 months correlation between VOLV-A and Flex is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and Flex LNG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flex LNG 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 Flex LNG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flex LNG has no effect on the direction of AB Volvo i.e., AB Volvo and Flex LNG go up and down completely randomly.

Pair Corralation between AB Volvo and Flex LNG

Assuming the 90 days trading horizon AB Volvo is expected to generate 0.82 times more return on investment than Flex LNG. However, AB Volvo is 1.22 times less risky than Flex LNG. It trades about 0.14 of its potential returns per unit of risk. Flex LNG is currently generating about -0.11 per unit of risk. If you would invest  25,520  in AB Volvo on September 12, 2024 and sell it today you would earn a total of  3,100  from holding AB Volvo or generate 12.15% return on investment over 90 days.

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

AB Volvo  vs.  Flex LNG

AB Volvo

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, AB Volvo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Flex LNG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flex LNG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with AB Volvo and Flex LNG

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

The idea behind AB Volvo and Flex LNG 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.