Correlation Between Evolution and Fagerhult

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

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

Diversification Opportunities for Evolution and Fagerhult

0.38

Correlation Coefficient

Evolution  Fagerhult

Weak diversification

The 3 months correlation between Evolution and Fagerhult is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Evolution AB and Fagerhult AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fagerhult AB and Evolution 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 Evolution AB are associated (or correlated) with Fagerhult. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fagerhult AB has no effect on the direction of Evolution i.e., Evolution and Fagerhult go up and down completely randomly.

Pair Corralation between Evolution and Fagerhult

Assuming the 90 days trading horizon Evolution AB is expected to generate 1.89 times more return on investment than Fagerhult. However, Evolution is 1.89 times more volatile than Fagerhult AB. It trades about -0.05 of its potential returns per unit of risk. Fagerhult AB is currently generating about -0.17 per unit of risk. If you would invest  104,000  in Evolution AB on September 3, 2024 and sell it today you would lose (8,800) from holding Evolution AB or give up 8.46% of portfolio value over 90 days.

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

Evolution AB  vs.  Fagerhult AB

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. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Fagerhult AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fagerhult AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Evolution and Fagerhult

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

The idea behind Evolution AB and Fagerhult 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.