Correlation Between OMX Stockholm and ABB

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

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

Diversification Opportunities for OMX Stockholm and ABB

-0.35

Correlation Coefficient

OMX Stockholm  ABB

Very good diversification

The 3 months correlation between OMX and ABB is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding OMX Stockholm Mid and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and OMX Stockholm 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 OMX Stockholm Mid 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 OMX Stockholm i.e., OMX Stockholm and ABB go up and down completely randomly.

Pair Corralation between OMX Stockholm and ABB

Assuming the 90 days trading horizon OMX Stockholm Mid is expected to under-perform the ABB. But the index apears to be less risky and, when comparing its historical volatility, OMX Stockholm Mid is 1.51 times less risky than ABB. The index trades about -0.06 of its potential returns per unit of risk. The ABB is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  59,040  in ABB on September 1, 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

OMX Stockholm Mid  vs.  ABB

Pair Trading with OMX Stockholm and ABB

The main advantage of trading using opposite OMX Stockholm and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OMX Stockholm 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 OMX Stockholm Mid 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 Commodity Directory module to find actively traded commodities issued by global exchanges.