Correlation Between Atlas Copco and AB Volvo

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

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

Diversification Opportunities for Atlas Copco and AB Volvo

0.42

Correlation Coefficient

Atlas Copco  AB Volvo

Very weak diversification

The 3 months correlation between Atlas and VOLV-B is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Atlas Copco AB and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and Atlas Copco 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 Atlas Copco AB 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 Atlas Copco i.e., Atlas Copco and AB Volvo go up and down completely randomly.

Pair Corralation between Atlas Copco and AB Volvo

Assuming the 90 days trading horizon Atlas Copco AB is expected to generate 1.37 times more return on investment than AB Volvo. However, Atlas Copco is 1.37 times more volatile than AB Volvo. It trades about 0.19 of its potential returns per unit of risk. AB Volvo is currently generating about -0.04 per unit of risk. If you would invest  18,475  in Atlas Copco AB on February 14, 2024 and sell it today you would earn a total of  1,505  from holding Atlas Copco AB or generate 8.15% return on investment over 90 days.

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

Atlas Copco AB  vs.  AB Volvo

Atlas Copco AB

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Atlas Copco AB are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Atlas Copco sustained solid returns over the last few months and may actually be approaching a breakup point.

AB Volvo

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, AB Volvo may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Atlas Copco and AB Volvo

The main advantage of trading using opposite Atlas Copco and AB Volvo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Atlas Copco 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 Atlas Copco AB 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.

Check out your portfolio center.

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.