Correlation Between OMX Copenhagen and Sparinvest Danske

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

By analyzing existing cross correlation between OMX Copenhagen All and Sparinvest Danske Aktier, you can compare the effects of market volatilities on OMX Copenhagen and Sparinvest Danske 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 OMX Copenhagen with a short position of Sparinvest Danske. Check out your portfolio center. Please also check ongoing floating volatility patterns of OMX Copenhagen and Sparinvest Danske.

Diversification Opportunities for OMX Copenhagen and Sparinvest Danske

0.89

Correlation Coefficient

OMX Copenhagen  Sparinvest Danske

Very poor diversification

The 3 months correlation between OMX and Sparinvest is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding OMX Copenhagen All and Sparinvest Danske Aktier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparinvest Danske Aktier and OMX Copenhagen 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 OMX Copenhagen All are associated (or correlated) with Sparinvest Danske. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparinvest Danske Aktier has no effect on the direction of OMX Copenhagen i.e., OMX Copenhagen and Sparinvest Danske go up and down completely randomly.

Pair Corralation between OMX Copenhagen and Sparinvest Danske

Assuming the 90 days trading horizon OMX Copenhagen All is expected to under-perform the Sparinvest Danske. In addition to that, OMX Copenhagen is 1.46 times more volatile than Sparinvest Danske Aktier. It trades about -0.17 of its total potential returns per unit of risk. Sparinvest Danske Aktier is currently generating about -0.15 per unit of volatility. If you would invest  24,130  in Sparinvest Danske Aktier on September 15, 2024 and sell it today you would lose (1,790) from holding Sparinvest Danske Aktier or give up 7.42% of portfolio value over 90 days.

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

OMX Copenhagen All  vs.  Sparinvest Danske Aktier

Pair Trading with OMX Copenhagen and Sparinvest Danske

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

The idea behind OMX Copenhagen All and Sparinvest Danske Aktier 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.