Correlation Between Kid ASA and Veidekke ASA

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

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

Diversification Opportunities for Kid ASA and Veidekke ASA

-0.8

Correlation Coefficient

Kid ASA  Veidekke ASA

Pay attention - limited upside

The 3 months correlation between Kid and Veidekke is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Kid ASA and Veidekke ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veidekke ASA and Kid ASA 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 Kid ASA are associated (or correlated) with Veidekke ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veidekke ASA has no effect on the direction of Kid ASA i.e., Kid ASA and Veidekke ASA go up and down completely randomly.

Pair Corralation between Kid ASA and Veidekke ASA

Assuming the 90 days trading horizon Kid ASA is expected to under-perform the Veidekke ASA. In addition to that, Kid ASA is 1.99 times more volatile than Veidekke ASA. It trades about -0.06 of its total potential returns per unit of risk. Veidekke ASA is currently generating about 0.22 per unit of volatility. If you would invest  12,220  in Veidekke ASA on September 25, 2024 and sell it today you would earn a total of  1,880  from holding Veidekke ASA or generate 15.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Kid ASA  vs.  Veidekke ASA

Kid ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kid ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Veidekke ASA

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Veidekke ASA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward indicators, Veidekke ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kid ASA and Veidekke ASA

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

The idea behind Kid ASA and Veidekke ASA 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.