Correlation Between ROCKWOOL International and First Farms

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

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

Diversification Opportunities for ROCKWOOL International and First Farms

0.49

Correlation Coefficient

ROCKWOOL International  First Farms

Very weak diversification

The 3 months correlation between ROCKWOOL and First is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding ROCKWOOL International AS and First Farms AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Farms AS and ROCKWOOL International 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 ROCKWOOL International AS are associated (or correlated) with First Farms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Farms AS has no effect on the direction of ROCKWOOL International i.e., ROCKWOOL International and First Farms go up and down completely randomly.

Pair Corralation between ROCKWOOL International and First Farms

Assuming the 90 days trading horizon ROCKWOOL International AS is expected to under-perform the First Farms. In addition to that, ROCKWOOL International is 1.51 times more volatile than First Farms AS. It trades about -0.08 of its total potential returns per unit of risk. First Farms AS is currently generating about -0.03 per unit of volatility. If you would invest  7,480  in First Farms AS on September 16, 2024 and sell it today you would lose (220.00) from holding First Farms AS or give up 2.94% of portfolio value over 90 days.

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

ROCKWOOL International AS  vs.  First Farms AS

ROCKWOOL International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ROCKWOOL International AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

First Farms AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Farms AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Farms is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ROCKWOOL International and First Farms

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

The idea behind ROCKWOOL International AS and First Farms AS 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.