Correlation Between Air France and AB Volvo

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

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

Diversification Opportunities for Air France and AB Volvo

-0.03

Correlation Coefficient

Air France  AB Volvo

Good diversification

The 3 months correlation between Air and VOLAF is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Air France 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 Air France KLM are associated (or correlated) with AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of Air France i.e., Air France and AB Volvo go up and down completely randomly.

Pair Corralation between Air France and AB Volvo

Assuming the 90 days horizon Air France KLM is expected to generate 1.79 times more return on investment than AB Volvo. However, Air France is 1.79 times more volatile than AB Volvo. It trades about 0.04 of its potential returns per unit of risk. AB Volvo is currently generating about -0.08 per unit of risk. If you would invest  111.00  in Air France KLM on March 6, 2024 and sell it today you would earn a total of  4.00  from holding Air France KLM or generate 3.6% return on investment over 90 days.

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

Air France KLM  vs.  AB Volvo

Air France KLM

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air France KLM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Air France is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AB Volvo

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Air France and AB Volvo

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

The idea behind Air France KLM and AB Volvo 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.