Correlation Between AB Volvo and Real Heart

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

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

Diversification Opportunities for AB Volvo and Real Heart

-0.69

Correlation Coefficient

AB Volvo  Real Heart

Excellent diversification

The 3 months correlation between VOLV-A and Real is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and Real Heart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Heart 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 Real Heart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Heart has no effect on the direction of AB Volvo i.e., AB Volvo and Real Heart go up and down completely randomly.

Pair Corralation between AB Volvo and Real Heart

Assuming the 90 days trading horizon AB Volvo is expected to generate 0.33 times more return on investment than Real Heart. However, AB Volvo is 3.04 times less risky than Real Heart. It trades about 0.06 of its potential returns per unit of risk. Real Heart is currently generating about -0.1 per unit of risk. If you would invest  26,460  in AB Volvo on September 4, 2024 and sell it today you would earn a total of  1,300  from holding AB Volvo or generate 4.91% 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.  Real Heart

AB Volvo

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, AB Volvo is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Real Heart

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Real Heart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with AB Volvo and Real Heart

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

The idea behind AB Volvo and Real Heart 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.