Correlation Between Kreditbanken and FLSmidth

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

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

Diversification Opportunities for Kreditbanken and FLSmidth

0.1

Correlation Coefficient

Kreditbanken  FLSmidth

Average diversification

The 3 months correlation between Kreditbanken and FLSmidth is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Kreditbanken AS and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and Kreditbanken 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 Kreditbanken 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 Kreditbanken i.e., Kreditbanken and FLSmidth go up and down completely randomly.

Pair Corralation between Kreditbanken and FLSmidth

Assuming the 90 days trading horizon Kreditbanken is expected to generate 12.06 times less return on investment than FLSmidth. But when comparing it to its historical volatility, Kreditbanken AS is 1.46 times less risky than FLSmidth. It trades about 0.02 of its potential returns per unit of risk. FLSmidth Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  32,520  in FLSmidth Co on September 12, 2024 and sell it today you would earn a total of  5,460  from holding FLSmidth Co or generate 16.79% return on investment over 90 days.

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

Kreditbanken AS  vs.  FLSmidth Co

Kreditbanken AS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kreditbanken AS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Kreditbanken 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 Kreditbanken and FLSmidth

The main advantage of trading using opposite Kreditbanken and FLSmidth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kreditbanken 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 Kreditbanken 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.