Correlation Between Danske Bank and CBrain AS

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

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

Diversification Opportunities for Danske Bank and CBrain AS

-0.33

Correlation Coefficient

Danske Bank  CBrain AS

Very good diversification

The 3 months correlation between Danske and CBrain is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Danske Bank AS and cBrain AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on cBrain AS and Danske Bank 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 Danske Bank AS are associated (or correlated) with CBrain AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of cBrain AS has no effect on the direction of Danske Bank i.e., Danske Bank and CBrain AS go up and down completely randomly.

Pair Corralation between Danske Bank and CBrain AS

Assuming the 90 days trading horizon Danske Bank is expected to generate 6.04 times less return on investment than CBrain AS. But when comparing it to its historical volatility, Danske Bank AS is 2.45 times less risky than CBrain AS. It trades about 0.09 of its potential returns per unit of risk. cBrain AS is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  17,700  in cBrain AS on August 31, 2024 and sell it today you would earn a total of  3,000  from holding cBrain AS or generate 16.95% return on investment over 90 days.

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

Danske Bank AS  vs.  cBrain AS

Danske Bank AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danske Bank AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Danske Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

cBrain AS

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in cBrain AS are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, CBrain AS may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Danske Bank and CBrain AS

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

The idea behind Danske Bank AS and cBrain AS 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.