Correlation Between ISS AS and FLSmidth

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

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

Diversification Opportunities for ISS AS and FLSmidth

0.4

Correlation Coefficient

ISS AS  FLSmidth

Very weak diversification

The 3 months correlation between ISS and FLSmidth is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding ISS AS and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and ISS AS 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 ISS AS 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 ISS AS i.e., ISS AS and FLSmidth go up and down completely randomly.

Pair Corralation between ISS AS and FLSmidth

Assuming the 90 days trading horizon ISS AS is expected to under-perform the FLSmidth. But the stock apears to be less risky and, when comparing its historical volatility, ISS AS is 1.2 times less risky than FLSmidth. The stock trades about -0.01 of its potential returns per unit of risk. The FLSmidth Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  22,679  in FLSmidth Co on September 3, 2024 and sell it today you would earn a total of  15,841  from holding FLSmidth Co or generate 69.85% return on investment over 90 days.

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

ISS AS  vs.  FLSmidth Co

ISS AS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ISS AS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, ISS AS is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

FLSmidth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 12 (%) 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 ISS AS and FLSmidth

The main advantage of trading using opposite ISS AS and FLSmidth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ISS AS 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 ISS AS 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.