Correlation Between Arion Banki and Idun Industrier

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

By analyzing existing cross correlation between Arion banki hf and Idun Industrier AB, you can compare the effects of market volatilities on Arion Banki and Idun Industrier 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 Arion Banki with a short position of Idun Industrier. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arion Banki and Idun Industrier.

Diversification Opportunities for Arion Banki and Idun Industrier

0.64

Correlation Coefficient

Arion Banki  Idun Industrier

Poor diversification

The 3 months correlation between Arion and Idun is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Arion banki hf and Idun Industrier AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Idun Industrier AB and Arion Banki 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 Arion banki hf are associated (or correlated) with Idun Industrier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Idun Industrier AB has no effect on the direction of Arion Banki i.e., Arion Banki and Idun Industrier go up and down completely randomly.

Pair Corralation between Arion Banki and Idun Industrier

Assuming the 90 days trading horizon Arion Banki is expected to generate 5.09 times less return on investment than Idun Industrier. But when comparing it to its historical volatility, Arion banki hf is 1.3 times less risky than Idun Industrier. It trades about 0.04 of its potential returns per unit of risk. Idun Industrier AB is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  28,100  in Idun Industrier AB on December 1, 2024 and sell it today you would earn a total of  4,900  from holding Idun Industrier AB or generate 17.44% return on investment over 90 days.

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

Arion banki hf  vs.  Idun Industrier AB

Arion banki hf

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arion banki hf are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Arion Banki is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Idun Industrier AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Idun Industrier AB are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Idun Industrier sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arion Banki and Idun Industrier

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

The idea behind Arion banki hf and Idun Industrier AB 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.