Correlation Between Associated British and Evolution

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

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

Diversification Opportunities for Associated British and Evolution

-0.21

Correlation Coefficient

Associated British  Evolution

Very good diversification

The 3 months correlation between Associated and Evolution is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Evolution AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution AB and Associated British 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 Associated British Foods are associated (or correlated) with Evolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution AB has no effect on the direction of Associated British i.e., Associated British and Evolution go up and down completely randomly.

Pair Corralation between Associated British and Evolution

Assuming the 90 days trading horizon Associated British Foods is expected to generate 0.66 times more return on investment than Evolution. However, Associated British Foods is 1.51 times less risky than Evolution. It trades about 0.06 of its potential returns per unit of risk. Evolution AB is currently generating about -0.03 per unit of risk. If you would invest  2,589  in Associated British Foods on September 12, 2024 and sell it today you would earn a total of  126.00  from holding Associated British Foods or generate 4.87% return on investment over 90 days.

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

Associated British Foods  vs.  Evolution AB

Associated British Foods

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Associated British Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Associated British is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Evolution AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Associated British and Evolution

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

The idea behind Associated British Foods and Evolution AB 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..