Correlation Between Ringkjoebing Landbobank and FLSmidth

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Can any of the company-specific risk be diversified away by investing in both Ringkjoebing Landbobank 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 Ringkjoebing Landbobank and FLSmidth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ringkjoebing Landbobank AS and FLSmidth Co, you can compare the effects of market volatilities on Ringkjoebing Landbobank 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 Ringkjoebing Landbobank with a short position of FLSmidth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ringkjoebing Landbobank and FLSmidth.

Diversification Opportunities for Ringkjoebing Landbobank and FLSmidth

0.54
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Ringkjoebing and FLSmidth is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ringkjoebing Landbobank AS and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and Ringkjoebing Landbobank 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 Ringkjoebing Landbobank 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 Ringkjoebing Landbobank i.e., Ringkjoebing Landbobank and FLSmidth go up and down completely randomly.

Pair Corralation between Ringkjoebing Landbobank and FLSmidth

Assuming the 90 days trading horizon Ringkjoebing Landbobank is expected to generate 1.64 times less return on investment than FLSmidth. But when comparing it to its historical volatility, Ringkjoebing Landbobank AS is 1.32 times less risky than FLSmidth. It trades about 0.14 of its potential returns per unit of risk. FLSmidth Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  32,340  in FLSmidth Co on September 5, 2024 and sell it today you would earn a total of  5,760  from holding FLSmidth Co or generate 17.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Ringkjoebing Landbobank AS  vs.  FLSmidth Co

 Performance 
       Timeline  
Ringkjoebing Landbobank 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Ringkjoebing Landbobank AS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Ringkjoebing Landbobank may actually be approaching a critical reversion point that can send shares even higher in January 2025.
FLSmidth 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 13 (%) 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.

Ringkjoebing Landbobank and FLSmidth Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ringkjoebing Landbobank and FLSmidth

The main advantage of trading using opposite Ringkjoebing Landbobank and FLSmidth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ringkjoebing Landbobank 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 Ringkjoebing Landbobank 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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