Correlation Between Traton SE and VOLVO B

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

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

Diversification Opportunities for Traton SE and VOLVO B

0.47

Correlation Coefficient

Traton SE  VOLVO B

Very weak diversification

The 3 months correlation between Traton and VOLVO is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Traton SE 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 Traton SE 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 Traton SE 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 Traton SE i.e., Traton SE and VOLVO B go up and down completely randomly.

Pair Corralation between Traton SE and VOLVO B

Assuming the 90 days trading horizon Traton SE is expected to under-perform the VOLVO B. In addition to that, Traton SE is 1.21 times more volatile than VOLVO B UNSPADR. It trades about -0.05 of its total potential returns per unit of risk. VOLVO B UNSPADR is currently generating about 0.0 per unit of volatility. If you would invest  2,300  in VOLVO B UNSPADR on September 24, 2024 and sell it today you would lose (20.00) from holding VOLVO B UNSPADR or give up 0.87% of portfolio value over 90 days.

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

Traton SE  vs.  VOLVO B UNSPADR

Traton SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Traton SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

VOLVO B UNSPADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VOLVO B UNSPADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, VOLVO B is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Traton SE and VOLVO B

The main advantage of trading using opposite Traton SE and VOLVO B positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Traton SE 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 Traton SE 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.