Correlation Between X FAB and AB Volvo

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

By analyzing existing cross correlation between X FAB Silicon Foundries and AB Volvo, you can compare the effects of market volatilities on X FAB and AB Volvo 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 X FAB with a short position of AB Volvo. Check out your portfolio center. Please also check ongoing floating volatility patterns of X FAB and AB Volvo.

Diversification Opportunities for X FAB and AB Volvo

0.08

Correlation Coefficient

X FAB  AB Volvo

Significant diversification

The 3 months correlation between XFB and VOL1 is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and X FAB 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 X FAB Silicon Foundries are associated (or correlated) with AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of X FAB i.e., X FAB and AB Volvo go up and down completely randomly.

Pair Corralation between X FAB and AB Volvo

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the AB Volvo. In addition to that, X FAB is 1.78 times more volatile than AB Volvo. It trades about -0.05 of its total potential returns per unit of risk. AB Volvo is currently generating about 0.01 per unit of volatility. If you would invest  2,332  in AB Volvo on October 4, 2024 and sell it today you would lose (8.00) from holding AB Volvo or give up 0.34% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  AB Volvo

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 nearly stable essential indicators, AB Volvo is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with X FAB and AB Volvo

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

The idea behind X FAB Silicon Foundries and AB Volvo 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.