Correlation Between Arion Banki and Icelandic Salmon

Can any of the company-specific risk be diversified away by investing in both Arion Banki and Icelandic Salmon 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 Icelandic Salmon 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 Icelandic Salmon AS, you can compare the effects of market volatilities on Arion Banki and Icelandic Salmon 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 Icelandic Salmon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arion Banki and Icelandic Salmon.

Diversification Opportunities for Arion Banki and Icelandic Salmon

0.65

Correlation Coefficient

Arion Banki  Icelandic Salmon

Poor diversification

The 3 months correlation between Arion and Icelandic is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Arion banki hf and Icelandic Salmon AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icelandic Salmon 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 Icelandic Salmon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icelandic Salmon has no effect on the direction of Arion Banki i.e., Arion Banki and Icelandic Salmon go up and down completely randomly.

Pair Corralation between Arion Banki and Icelandic Salmon

Assuming the 90 days trading horizon Arion banki hf is expected to generate 0.77 times more return on investment than Icelandic Salmon. However, Arion banki hf is 1.3 times less risky than Icelandic Salmon. It trades about 0.2 of its potential returns per unit of risk. Icelandic Salmon AS is currently generating about 0.1 per unit of risk. If you would invest  13,700  in Arion banki hf on September 12, 2024 and sell it today you would earn a total of  2,100  from holding Arion banki hf or generate 15.33% 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.  Icelandic Salmon AS

Arion banki hf

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arion banki hf are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent forward indicators, Arion Banki demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Icelandic Salmon

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Icelandic Salmon AS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward indicators, Icelandic Salmon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Arion Banki and Icelandic Salmon

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

The idea behind Arion banki hf and Icelandic Salmon 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.