Correlation Between Prysmian SPA and ABB

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

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

Diversification Opportunities for Prysmian SPA and ABB

0.93

Correlation Coefficient

Prysmian SPA  ABB

Almost no diversification

The 3 months correlation between Prysmian and ABB is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Prysmian SPA ADR and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Prysmian SPA 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 Prysmian SPA ADR 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 Prysmian SPA i.e., Prysmian SPA and ABB go up and down completely randomly.

Pair Corralation between Prysmian SPA and ABB

Assuming the 90 days horizon Prysmian SPA is expected to generate 3.35 times less return on investment than ABB. But when comparing it to its historical volatility, Prysmian SPA ADR is 1.27 times less risky than ABB. It trades about 0.04 of its potential returns per unit of risk. ABB is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,667  in ABB on January 25, 2024 and sell it today you would earn a total of  171.00  from holding ABB or generate 3.66% return on investment over 90 days.

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

Prysmian SPA ADR  vs.  ABB

Prysmian SPA ADR

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Prysmian SPA ADR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, Prysmian SPA showed solid returns over the last few months and may actually be approaching a breakup point.

ABB

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, ABB reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prysmian SPA and ABB

The main advantage of trading using opposite Prysmian SPA and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prysmian SPA 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 Prysmian SPA ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.