Correlation Between First Farms and Djurslands Bank

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

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

Diversification Opportunities for First Farms and Djurslands Bank

-0.45

Correlation Coefficient

First Farms  Djurslands Bank

Very good diversification

The 3 months correlation between First and Djurslands is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding First Farms AS and Djurslands Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Djurslands Bank and First Farms 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 First Farms AS are associated (or correlated) with Djurslands Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Djurslands Bank has no effect on the direction of First Farms i.e., First Farms and Djurslands Bank go up and down completely randomly.

Pair Corralation between First Farms and Djurslands Bank

Assuming the 90 days trading horizon First Farms AS is expected to under-perform the Djurslands Bank. In addition to that, First Farms is 1.41 times more volatile than Djurslands Bank. It trades about -0.01 of its total potential returns per unit of risk. Djurslands Bank is currently generating about 0.09 per unit of volatility. If you would invest  36,236  in Djurslands Bank on October 21, 2024 and sell it today you would earn a total of  23,264  from holding Djurslands Bank or generate 64.2% return on investment over 90 days.

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

First Farms AS  vs.  Djurslands Bank

First Farms AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Farms AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Farms is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Djurslands Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Djurslands Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Djurslands Bank displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Farms and Djurslands Bank

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

The idea behind First Farms AS and Djurslands Bank 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.