Correlation Between ABB and Autoliv

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

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

Diversification Opportunities for ABB and Autoliv

0.89

Correlation Coefficient

ABB  Autoliv

Very poor diversification

The 3 months correlation between ABB and Autoliv is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ABB and Autoliv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autoliv and ABB 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 ABB are associated (or correlated) with Autoliv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autoliv has no effect on the direction of ABB i.e., ABB and Autoliv go up and down completely randomly.

Pair Corralation between ABB and Autoliv

Assuming the 90 days trading horizon ABB is expected to generate 1.03 times less return on investment than Autoliv. In addition to that, ABB is 1.14 times more volatile than Autoliv. It trades about 0.26 of its total potential returns per unit of risk. Autoliv is currently generating about 0.31 per unit of volatility. If you would invest  82,380  in Autoliv on April 21, 2025 and sell it today you would earn a total of  26,520  from holding Autoliv or generate 32.19% return on investment over 90 days.

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

ABB  vs.  Autoliv

ABB

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, ABB unveiled solid returns over the last few months and may actually be approaching a breakup point.

Autoliv

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Autoliv are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Autoliv exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABB and Autoliv

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

The idea behind ABB and Autoliv 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.