Correlation Between Arion Banki and Kvika Banki

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

Diversification Opportunities for Arion Banki and Kvika Banki

0.63

Correlation Coefficient

Arion Banki  Kvika Banki

Poor diversification

The 3 months correlation between Arion and Kvika is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Arion banki hf and Kvika banki hf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kvika banki hf 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 Kvika Banki. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kvika banki hf has no effect on the direction of Arion Banki i.e., Arion Banki and Kvika Banki go up and down completely randomly.

Pair Corralation between Arion Banki and Kvika Banki

Assuming the 90 days trading horizon Arion banki hf is expected to generate 0.5 times more return on investment than Kvika Banki. However, Arion banki hf is 2.01 times less risky than Kvika Banki. It trades about -0.06 of its potential returns per unit of risk. Kvika banki hf is currently generating about -0.1 per unit of risk. If you would invest  16,700  in Arion banki hf on December 30, 2024 and sell it today you would lose (1,150) from holding Arion banki hf or give up 6.89% of portfolio value over 90 days.

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

Arion banki hf  vs.  Kvika banki hf

Arion banki hf

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arion banki hf has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Arion Banki is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Kvika banki hf

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kvika banki hf has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Arion Banki and Kvika Banki

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

The idea behind Arion banki hf and Kvika 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.