Correlation Between Autoliv and Dorman Products

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

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

Diversification Opportunities for Autoliv and Dorman Products

0.46

Correlation Coefficient

Autoliv  Dorman Products

Very weak diversification

The 3 months correlation between Autoliv and Dorman is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Autoliv and Dorman Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorman Products and Autoliv 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 Autoliv are associated (or correlated) with Dorman Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorman Products has no effect on the direction of Autoliv i.e., Autoliv and Dorman Products go up and down completely randomly.

Pair Corralation between Autoliv and Dorman Products

Considering the 90-day investment horizon Autoliv is expected to generate 40.87 times less return on investment than Dorman Products. But when comparing it to its historical volatility, Autoliv is 1.06 times less risky than Dorman Products. It trades about 0.01 of its potential returns per unit of risk. Dorman Products is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  10,950  in Dorman Products on August 31, 2024 and sell it today you would earn a total of  3,030  from holding Dorman Products or generate 27.67% return on investment over 90 days.

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

Autoliv  vs.  Dorman Products

Autoliv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Autoliv has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Autoliv is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Dorman Products

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dorman Products displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Autoliv and Dorman Products

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

The idea behind Autoliv and Dorman Products 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.