Correlation Between Bang Olufsen and FLSmidth

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

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

Diversification Opportunities for Bang Olufsen and FLSmidth

0.87

Correlation Coefficient

Bang Olufsen  FLSmidth

Very poor diversification

The 3 months correlation between Bang and FLSmidth is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Bang Olufsen and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and Bang Olufsen 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 Bang Olufsen are associated (or correlated) with FLSmidth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FLSmidth has no effect on the direction of Bang Olufsen i.e., Bang Olufsen and FLSmidth go up and down completely randomly.

Pair Corralation between Bang Olufsen and FLSmidth

Assuming the 90 days horizon Bang Olufsen is expected to generate 1.84 times less return on investment than FLSmidth. In addition to that, Bang Olufsen is 1.36 times more volatile than FLSmidth Co. It trades about 0.13 of its total potential returns per unit of risk. FLSmidth Co is currently generating about 0.32 per unit of volatility. If you would invest  35,620  in FLSmidth Co on September 5, 2024 and sell it today you would earn a total of  3,080  from holding FLSmidth Co or generate 8.65% return on investment over 90 days.

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

Bang Olufsen  vs.  FLSmidth Co

Bang Olufsen

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bang Olufsen are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Bang Olufsen may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FLSmidth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, FLSmidth displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bang Olufsen and FLSmidth

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

The idea behind Bang Olufsen and FLSmidth Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.