Correlation Between AB Volvo and Industrivarden

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

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

Diversification Opportunities for AB Volvo and Industrivarden

0.45

Correlation Coefficient

AB Volvo  Industrivarden

Very weak diversification

The 3 months correlation between VOLV-A and Industrivarden is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and Industrivarden AB ser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrivarden AB ser 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 Industrivarden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrivarden AB ser has no effect on the direction of AB Volvo i.e., AB Volvo and Industrivarden go up and down completely randomly.

Pair Corralation between AB Volvo and Industrivarden

Assuming the 90 days trading horizon AB Volvo is expected to generate 1.29 times more return on investment than Industrivarden. However, AB Volvo is 1.29 times more volatile than Industrivarden AB ser. It trades about 0.06 of its potential returns per unit of risk. Industrivarden AB ser is currently generating about 0.07 per unit of risk. If you would invest  19,042  in AB Volvo on September 26, 2024 and sell it today you would earn a total of  7,718  from holding AB Volvo or generate 40.53% return on investment over 90 days.

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

AB Volvo  vs.  Industrivarden AB ser

AB Volvo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AB Volvo has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Industrivarden AB ser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industrivarden AB ser has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with AB Volvo and Industrivarden

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

The idea behind AB Volvo and Industrivarden AB ser 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.