Correlation Between Volvo Car and Alfa Laval

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

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

Diversification Opportunities for Volvo Car and Alfa Laval

-0.76

Correlation Coefficient

Volvo Car  Alfa Laval

Pay attention - limited upside

The 3 months correlation between Volvo and Alfa is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Volvo Car AB and Alfa Laval AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Laval AB and Volvo Car 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 Volvo Car AB are associated (or correlated) with Alfa Laval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Laval AB has no effect on the direction of Volvo Car i.e., Volvo Car and Alfa Laval go up and down completely randomly.

Pair Corralation between Volvo Car and Alfa Laval

Assuming the 90 days trading horizon Volvo Car AB is expected to generate 2.76 times more return on investment than Alfa Laval. However, Volvo Car is 2.76 times more volatile than Alfa Laval AB. It trades about -0.06 of its potential returns per unit of risk. Alfa Laval AB is currently generating about -0.24 per unit of risk. If you would invest  3,291  in Volvo Car AB on March 21, 2024 and sell it today you would lose (145.00) from holding Volvo Car AB or give up 4.41% of portfolio value over 90 days.

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

Volvo Car AB  vs.  Alfa Laval AB

Volvo Car AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volvo Car AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Alfa Laval AB

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Volvo Car and Alfa Laval

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

The idea behind Volvo Car AB and Alfa Laval 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.