Correlation Between AB Electrolux and ABB

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

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

Diversification Opportunities for AB Electrolux and ABB

-0.46

Correlation Coefficient

AB Electrolux  ABB

Very good diversification

The 3 months correlation between ELUX-B and ABB is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding AB Electrolux and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and AB Electrolux 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 Electrolux are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of AB Electrolux i.e., AB Electrolux and ABB go up and down completely randomly.

Pair Corralation between AB Electrolux and ABB

Assuming the 90 days trading horizon AB Electrolux is expected to under-perform the ABB. In addition to that, AB Electrolux is 2.37 times more volatile than ABB. It trades about -0.08 of its total potential returns per unit of risk. ABB is currently generating about 0.07 per unit of volatility. If you would invest  59,040  in ABB on August 31, 2024 and sell it today you would earn a total of  2,920  from holding ABB or generate 4.95% return on investment over 90 days.

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

AB Electrolux  vs.  ABB

AB Electrolux

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AB Electrolux has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

ABB

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, ABB is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AB Electrolux and ABB

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

The idea behind AB Electrolux and ABB 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.