Correlation Between Arion Banki and Nordea Bank

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

By analyzing existing cross correlation between Arion banki hf and Nordea Bank Abp, you can compare the effects of market volatilities on Arion Banki and Nordea Bank 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 Arion Banki with a short position of Nordea Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arion Banki and Nordea Bank.

Diversification Opportunities for Arion Banki and Nordea Bank

0.57

Correlation Coefficient

Arion Banki  Nordea Bank

Very weak diversification

The 3 months correlation between Arion and Nordea is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Arion banki hf and Nordea Bank Abp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordea Bank Abp and Arion Banki 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 Arion banki hf are associated (or correlated) with Nordea Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordea Bank Abp has no effect on the direction of Arion Banki i.e., Arion Banki and Nordea Bank go up and down completely randomly.

Pair Corralation between Arion Banki and Nordea Bank

Assuming the 90 days trading horizon Arion banki hf is expected to generate 1.35 times more return on investment than Nordea Bank. However, Arion Banki is 1.35 times more volatile than Nordea Bank Abp. It trades about 0.19 of its potential returns per unit of risk. Nordea Bank Abp is currently generating about 0.05 per unit of risk. If you would invest  1,025  in Arion banki hf on September 13, 2024 and sell it today you would earn a total of  220.00  from holding Arion banki hf or generate 21.46% return on investment over 90 days.

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

Arion banki hf  vs.  Nordea Bank Abp

Arion banki hf

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arion banki hf are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Arion Banki unveiled solid returns over the last few months and may actually be approaching a breakup point.

Nordea Bank Abp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nordea Bank Abp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nordea Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Arion Banki and Nordea Bank

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

The idea behind Arion banki hf and Nordea Bank Abp 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.