Correlation Between Nordea 1 and Nordea 2

Can any of the company-specific risk be diversified away by investing in both Nordea 1 and Nordea 2 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 1 and Nordea 2 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nordea 1 and Nordea 2 , you can compare the effects of market volatilities on Nordea 1 and Nordea 2 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 1 with a short position of Nordea 2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nordea 1 and Nordea 2.

Diversification Opportunities for Nordea 1 and Nordea 2

0.86

Correlation Coefficient

Nordea 1  Nordea 2

Very poor diversification

The 3 months correlation between Nordea and Nordea is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Nordea 1 and Nordea 2 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordea 2 and Nordea 1 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 1 are associated (or correlated) with Nordea 2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordea 2 has no effect on the direction of Nordea 1 i.e., Nordea 1 and Nordea 2 go up and down completely randomly.

Pair Corralation between Nordea 1 and Nordea 2

Assuming the 90 days trading horizon Nordea 1 is expected to under-perform the Nordea 2. But the fund apears to be less risky and, when comparing its historical volatility, Nordea 1 is 1.13 times less risky than Nordea 2. The fund trades about -0.12 of its potential returns per unit of risk. The Nordea 2 is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  24,844  in Nordea 2 on December 27, 2024 and sell it today you would lose (782.00) from holding Nordea 2 or give up 3.15% of portfolio value over 90 days.

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

Nordea 1   vs.  Nordea 2

Nordea 1

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nordea 1 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Nordea 2

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nordea 2 has generated negative risk-adjusted returns adding no value to fund investors. Despite fairly strong technical indicators, Nordea 2 is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nordea 1 and Nordea 2

The main advantage of trading using opposite Nordea 1 and Nordea 2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nordea 1 position performs unexpectedly, Nordea 2 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 Nordea 2 will offset losses from the drop in Nordea 2's long position.

The idea behind Nordea 1 and Nordea 2 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.