Correlation Between AB Volvo and Hufvudstaden

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

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

Diversification Opportunities for AB Volvo and Hufvudstaden

-0.46

Correlation Coefficient

AB Volvo  Hufvudstaden

Very good diversification

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

Pair Corralation between AB Volvo and Hufvudstaden

Assuming the 90 days trading horizon AB Volvo is expected to generate 1.21 times more return on investment than Hufvudstaden. However, AB Volvo is 1.21 times more volatile than Hufvudstaden AB. It trades about 0.09 of its potential returns per unit of risk. Hufvudstaden AB is currently generating about -0.12 per unit of risk. If you would invest  26,100  in AB Volvo on September 5, 2024 and sell it today you would earn a total of  1,940  from holding AB Volvo or generate 7.43% return on investment over 90 days.

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

AB Volvo  vs.  Hufvudstaden AB

AB Volvo

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, AB Volvo may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hufvudstaden AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hufvudstaden AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with AB Volvo and Hufvudstaden

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

The idea behind AB Volvo and Hufvudstaden 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.