Correlation Between CochLear and Demant A/S

Can any of the company-specific risk be diversified away by investing in both CochLear and Demant A/S 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 CochLear and Demant A/S into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CochLear Ltd ADR and Demant AS ADR, you can compare the effects of market volatilities on CochLear and Demant A/S 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 CochLear with a short position of Demant A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of CochLear and Demant A/S.

Diversification Opportunities for CochLear and Demant A/S

0.5

Correlation Coefficient

CochLear  Demant A/S

Very weak diversification

The 3 months correlation between CochLear and Demant is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding CochLear Ltd ADR and Demant AS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Demant AS ADR and CochLear 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 CochLear Ltd ADR are associated (or correlated) with Demant A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Demant AS ADR has no effect on the direction of CochLear i.e., CochLear and Demant A/S go up and down completely randomly.

Pair Corralation between CochLear and Demant A/S

Assuming the 90 days horizon CochLear is expected to generate 1.5 times less return on investment than Demant A/S. But when comparing it to its historical volatility, CochLear Ltd ADR is 1.18 times less risky than Demant A/S. It trades about 0.02 of its potential returns per unit of risk. Demant AS ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,565  in Demant AS ADR on December 2, 2024 and sell it today you would earn a total of  250.00  from holding Demant AS ADR or generate 15.97% return on investment over 90 days.

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

CochLear Ltd ADR  vs.  Demant AS ADR

CochLear ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days CochLear Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Demant AS ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Demant AS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Demant A/S is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CochLear and Demant A/S

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

The idea behind CochLear Ltd ADR and Demant AS ADR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.