Correlation Between TF Bank and Arion Banki

Can any of the company-specific risk be diversified away by investing in both TF 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 TF 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 TF Bank AB and Arion banki hf, you can compare the effects of market volatilities on TF 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 TF Bank with a short position of Arion Banki. Check out your portfolio center. Please also check ongoing floating volatility patterns of TF Bank and Arion Banki.

Diversification Opportunities for TF Bank and Arion Banki

0.81

Correlation Coefficient

TF Bank  Arion Banki

Very poor diversification

The 3 months correlation between TFBANK and Arion is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding TF Bank AB 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 TF 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 TF Bank AB 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 TF Bank i.e., TF Bank and Arion Banki go up and down completely randomly.

Pair Corralation between TF Bank and Arion Banki

Assuming the 90 days trading horizon TF Bank AB is expected to generate 1.32 times more return on investment than Arion Banki. However, TF Bank is 1.32 times more volatile than Arion banki hf. It trades about 0.21 of its potential returns per unit of risk. Arion banki hf is currently generating about 0.19 per unit of risk. If you would invest  26,500  in TF Bank AB on September 13, 2024 and sell it today you would earn a total of  8,800  from holding TF Bank AB or generate 33.21% return on investment over 90 days.

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

TF Bank AB  vs.  Arion banki hf

TF Bank AB

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TF Bank AB are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, TF Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Arion banki hf

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arion banki hf are ranked lower than 14 (%) 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 TF Bank and Arion Banki

The main advantage of trading using opposite TF Bank and Arion Banki positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TF 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 TF Bank AB 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.