Correlation Between AB Volvo and Lime Technologies

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

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

Diversification Opportunities for AB Volvo and Lime Technologies

0.66

Correlation Coefficient

AB Volvo  Lime Technologies

Poor diversification

The 3 months correlation between VOLV-B and Lime is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding AB Volvo and Lime Technologies AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lime Technologies 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 Lime Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lime Technologies has no effect on the direction of AB Volvo i.e., AB Volvo and Lime Technologies go up and down completely randomly.

Pair Corralation between AB Volvo and Lime Technologies

Assuming the 90 days trading horizon AB Volvo is expected to generate 4.26 times less return on investment than Lime Technologies. But when comparing it to its historical volatility, AB Volvo is 1.42 times less risky than Lime Technologies. It trades about 0.02 of its potential returns per unit of risk. Lime Technologies AB is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  31,935  in Lime Technologies AB on August 31, 2024 and sell it today you would earn a total of  2,115  from holding Lime Technologies AB or generate 6.62% return on investment over 90 days.

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

AB Volvo  vs.  Lime Technologies AB

AB Volvo

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, AB Volvo is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Lime Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lime Technologies AB are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Lime Technologies may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with AB Volvo and Lime Technologies

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

The idea behind AB Volvo and Lime Technologies 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.