Correlation Between ABB and Swisscom

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

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

Diversification Opportunities for ABB and Swisscom

-0.28

Correlation Coefficient

ABB  Swisscom

Very good diversification

The 3 months correlation between ABB and Swisscom is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding ABB and Swisscom AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swisscom AG 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 Swisscom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swisscom AG has no effect on the direction of ABB i.e., ABB and Swisscom go up and down completely randomly.

Pair Corralation between ABB and Swisscom

Assuming the 90 days trading horizon ABB is expected to generate 1.43 times more return on investment than Swisscom. However, ABB is 1.43 times more volatile than Swisscom AG. It trades about 0.02 of its potential returns per unit of risk. Swisscom AG is currently generating about -0.11 per unit of risk. If you would invest  4,897  in ABB on August 31, 2024 and sell it today you would earn a total of  51.00  from holding ABB or generate 1.04% return on investment over 90 days.

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

ABB  vs.  Swisscom AG

ABB

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, ABB is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Swisscom AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Swisscom AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Swisscom is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ABB and Swisscom

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

The idea behind ABB and Swisscom AG 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.