Correlation Between Salesforce and ABB

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

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

Diversification Opportunities for Salesforce and ABB

-0.61

Correlation Coefficient

Salesforce  ABB

Excellent diversification

The 3 months correlation between Salesforce and ABB is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and ABB go up and down completely randomly.

Pair Corralation between Salesforce and ABB

Considering the 90-day investment horizon Salesforce is expected to generate 1.42 times less return on investment than ABB. In addition to that, Salesforce is 1.63 times more volatile than ABB. It trades about 0.06 of its total potential returns per unit of risk. ABB is currently generating about 0.13 per unit of volatility. If you would invest  26,689  in ABB on February 13, 2024 and sell it today you would earn a total of  29,591  from holding ABB or generate 110.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.56%
Values	Daily Returns

Salesforce  vs.  ABB

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Salesforce is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

ABB

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, ABB unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Salesforce and ABB

The main advantage of trading using opposite Salesforce and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.