Correlation Between Coloplast and BankInvest Select

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

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

Diversification Opportunities for Coloplast and BankInvest Select

0.32

Correlation Coefficient

Coloplast  BankInvest Select

Weak diversification

The 3 months correlation between Coloplast and BankInvest is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Coloplast AS and BankInvest Select Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankInvest Select Small and Coloplast 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 Coloplast AS are associated (or correlated) with BankInvest Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankInvest Select Small has no effect on the direction of Coloplast i.e., Coloplast and BankInvest Select go up and down completely randomly.

Pair Corralation between Coloplast and BankInvest Select

Assuming the 90 days trading horizon Coloplast AS is expected to generate 0.68 times more return on investment than BankInvest Select. However, Coloplast AS is 1.47 times less risky than BankInvest Select. It trades about -0.1 of its potential returns per unit of risk. BankInvest Select Small is currently generating about -0.11 per unit of risk. If you would invest  78,620  in Coloplast AS on December 29, 2024 and sell it today you would lose (5,500) from holding Coloplast AS or give up 7.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	68.25%
Values	Daily Returns

Coloplast AS  vs.  BankInvest Select Small

Coloplast AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coloplast AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

BankInvest Select Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days BankInvest Select Small has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Coloplast and BankInvest Select

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

The idea behind Coloplast AS and BankInvest Select Small 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.