Correlation Between Rev and Epiroc AB

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

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

Diversification Opportunities for Rev and Epiroc AB

0.73

Correlation Coefficient

Rev  Epiroc AB

Poor diversification

The 3 months correlation between Rev and Epiroc is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Rev Group and Epiroc AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epiroc AB and Rev 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 Rev Group are associated (or correlated) with Epiroc AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epiroc AB has no effect on the direction of Rev i.e., Rev and Epiroc AB go up and down completely randomly.

Pair Corralation between Rev and Epiroc AB

Given the investment horizon of 90 days Rev Group is expected to generate 1.74 times more return on investment than Epiroc AB. However, Rev is 1.74 times more volatile than Epiroc AB. It trades about 0.21 of its potential returns per unit of risk. Epiroc AB is currently generating about 0.02 per unit of risk. If you would invest  1,291  in Rev Group on January 25, 2024 and sell it today you would earn a total of  900.00  from holding Rev Group or generate 69.71% return on investment over 90 days.

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

Rev Group  vs.  Epiroc AB

Rev Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rev Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Rev reported solid returns over the last few months and may actually be approaching a breakup point.

Epiroc AB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epiroc AB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal forward-looking signals, Epiroc AB may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Rev and Epiroc AB

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

The idea behind Rev Group and Epiroc 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..