Correlation Between Nordea Bank and Arion Banki

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

By analyzing existing cross correlation between Nordea Bank Abp and Arion banki hf, you can compare the effects of market volatilities on Nordea Bank and Arion Banki 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 Nordea Bank with a short position of Arion Banki. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nordea Bank and Arion Banki.

Diversification Opportunities for Nordea Bank and Arion Banki

0.54

Correlation Coefficient

Nordea Bank  Arion Banki

Very weak diversification

The 3 months correlation between Nordea and Arion is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Nordea Bank Abp and Arion banki hf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arion banki hf and Nordea 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 Nordea Bank Abp are associated (or correlated) with Arion Banki. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arion banki hf has no effect on the direction of Nordea Bank i.e., Nordea Bank and Arion Banki go up and down completely randomly.

Pair Corralation between Nordea Bank and Arion Banki

Assuming the 90 days trading horizon Nordea Bank is expected to generate 5.05 times less return on investment than Arion Banki. But when comparing it to its historical volatility, Nordea Bank Abp is 1.42 times less risky than Arion Banki. It trades about 0.05 of its potential returns per unit of risk. Arion banki hf is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,040  in Arion banki hf on September 5, 2024 and sell it today you would earn a total of  215.00  from holding Arion banki hf or generate 20.67% return on investment over 90 days.

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

Nordea Bank Abp  vs.  Arion banki hf

Nordea Bank Abp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nordea Bank Abp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nordea Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Arion banki hf

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arion banki hf are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Arion Banki unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nordea Bank and Arion Banki

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

The idea behind Nordea Bank Abp and Arion banki hf 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.