Correlation Between FLSmidth and Vestjysk Bank

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

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

Diversification Opportunities for FLSmidth and Vestjysk Bank

-0.71

Correlation Coefficient

FLSmidth  Vestjysk Bank

Pay attention - limited upside

The 3 months correlation between FLSmidth and Vestjysk is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding FLSmidth Co and Vestjysk Bank AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vestjysk Bank AS and FLSmidth 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 FLSmidth Co are associated (or correlated) with Vestjysk Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vestjysk Bank AS has no effect on the direction of FLSmidth i.e., FLSmidth and Vestjysk Bank go up and down completely randomly.

Pair Corralation between FLSmidth and Vestjysk Bank

Assuming the 90 days trading horizon FLSmidth Co is expected to generate 2.21 times more return on investment than Vestjysk Bank. However, FLSmidth is 2.21 times more volatile than Vestjysk Bank AS. It trades about 0.18 of its potential returns per unit of risk. Vestjysk Bank AS is currently generating about -0.08 per unit of risk. If you would invest  32,040  in FLSmidth Co on September 11, 2024 and sell it today you would earn a total of  5,940  from holding FLSmidth Co or generate 18.54% return on investment over 90 days.

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

FLSmidth Co  vs.  Vestjysk Bank AS

FLSmidth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 14 (%) 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.

Vestjysk Bank AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestjysk Bank AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vestjysk Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with FLSmidth and Vestjysk Bank

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

The idea behind FLSmidth Co and Vestjysk Bank 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.