Correlation Between Danske Bank and Nordfyns Bank

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

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

Diversification Opportunities for Danske Bank and Nordfyns Bank

0.34

Correlation Coefficient

Danske Bank  Nordfyns Bank

Weak diversification

The 3 months correlation between Danske and Nordfyns is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Danske Bank AS and Nordfyns Bank AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordfyns Bank AS and Danske Bank 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 Danske Bank AS are associated (or correlated) with Nordfyns Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordfyns Bank AS has no effect on the direction of Danske Bank i.e., Danske Bank and Nordfyns Bank go up and down completely randomly.

Pair Corralation between Danske Bank and Nordfyns Bank

Assuming the 90 days trading horizon Danske Bank AS is expected to generate 1.35 times more return on investment than Nordfyns Bank. However, Danske Bank is 1.35 times more volatile than Nordfyns Bank AS. It trades about 0.2 of its potential returns per unit of risk. Nordfyns Bank AS is currently generating about 0.01 per unit of risk. If you would invest  19,140  in Danske Bank AS on December 29, 2024 and sell it today you would earn a total of  4,060  from holding Danske Bank AS or generate 21.21% return on investment over 90 days.

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

Danske Bank AS  vs.  Nordfyns Bank AS

Danske Bank AS

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Danske Bank AS are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Danske Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Nordfyns Bank AS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nordfyns Bank AS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Nordfyns Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Danske Bank and Nordfyns Bank

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

The idea behind Danske Bank AS and Nordfyns Bank 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.