Correlation Between AB Electrolux and Firefly AB

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

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

Diversification Opportunities for AB Electrolux and Firefly AB

0.69

Correlation Coefficient

AB Electrolux  Firefly AB

Poor diversification

The 3 months correlation between ELUX-B and Firefly is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding AB Electrolux and Firefly AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firefly AB and AB Electrolux 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 Electrolux are associated (or correlated) with Firefly AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firefly AB has no effect on the direction of AB Electrolux i.e., AB Electrolux and Firefly AB go up and down completely randomly.

Pair Corralation between AB Electrolux and Firefly AB

Assuming the 90 days trading horizon AB Electrolux is expected to generate 2.55 times less return on investment than Firefly AB. But when comparing it to its historical volatility, AB Electrolux is 1.15 times less risky than Firefly AB. It trades about 0.08 of its potential returns per unit of risk. Firefly AB is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  16,582  in Firefly AB on February 28, 2024 and sell it today you would earn a total of  5,418  from holding Firefly AB or generate 32.67% return on investment over 90 days.

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

AB Electrolux  vs.  Firefly AB

AB Electrolux

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AB Electrolux are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, AB Electrolux may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Firefly AB

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Firefly AB are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Firefly AB unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AB Electrolux and Firefly AB

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

The idea behind AB Electrolux and Firefly 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.