Correlation Between PACCAR and AB Volvo

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Can any of the company-specific risk be diversified away by investing in both PACCAR and AB Volvo 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 PACCAR and AB Volvo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PACCAR Inc and AB Volvo, you can compare the effects of market volatilities on PACCAR and AB Volvo 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 PACCAR with a short position of AB Volvo. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and AB Volvo.

Diversification Opportunities for PACCAR and AB Volvo

0.12
  Correlation Coefficient

Average diversification

The 3 months correlation between PACCAR and VOLAF is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and AB Volvo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Volvo and PACCAR 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 PACCAR Inc are associated (or correlated) with AB Volvo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Volvo has no effect on the direction of PACCAR i.e., PACCAR and AB Volvo go up and down completely randomly.

Pair Corralation between PACCAR and AB Volvo

Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.96 times more return on investment than AB Volvo. However, PACCAR Inc is 1.04 times less risky than AB Volvo. It trades about 0.11 of its potential returns per unit of risk. AB Volvo is currently generating about 0.08 per unit of risk. If you would invest  8,947  in PACCAR Inc on May 1, 2025 and sell it today you would earn a total of  1,001  from holding PACCAR Inc or generate 11.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

PACCAR Inc  vs.  AB Volvo

 Performance 
       Timeline  
PACCAR Inc 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in August 2025.
AB Volvo 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in AB Volvo are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, AB Volvo may actually be approaching a critical reversion point that can send shares even higher in August 2025.

PACCAR and AB Volvo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PACCAR and AB Volvo

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

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