Correlation Between AB Volvo and VOLVO B

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

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

Diversification Opportunities for AB Volvo and VOLVO B

0.89

Correlation Coefficient

AB Volvo  VOLVO B

Very poor diversification

The 3 months correlation between VOL1 and VOLVO is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and VOLVO B UNSPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLVO B UNSPADR 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 VOLVO B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VOLVO B UNSPADR has no effect on the direction of AB Volvo i.e., AB Volvo and VOLVO B go up and down completely randomly.

Pair Corralation between AB Volvo and VOLVO B

Assuming the 90 days trading horizon AB Volvo is expected to generate 1.06 times less return on investment than VOLVO B. But when comparing it to its historical volatility, AB Volvo is 1.17 times less risky than VOLVO B. It trades about 0.03 of its potential returns per unit of risk. VOLVO B UNSPADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,240  in VOLVO B UNSPADR on April 20, 2025 and sell it today you would earn a total of  40.00  from holding VOLVO B UNSPADR or generate 1.79% return on investment over 90 days.

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

AB Volvo  vs.  VOLVO B UNSPADR

AB Volvo

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, AB Volvo is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

VOLVO B UNSPADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VOLVO B UNSPADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, VOLVO B is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AB Volvo and VOLVO B

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

The idea behind AB Volvo and VOLVO B UNSPADR 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.