Correlation Between First Farms and Fynske Bank

Can any of the company-specific risk be diversified away by investing in both First Farms and Fynske 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 Fynske 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 Fynske Bank AS, you can compare the effects of market volatilities on First Farms and Fynske 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 Fynske Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Farms and Fynske Bank.

Diversification Opportunities for First Farms and Fynske Bank

-0.03

Correlation Coefficient

First Farms  Fynske Bank

Good diversification

The 3 months correlation between First and Fynske is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding First Farms AS and Fynske Bank AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fynske Bank AS 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 Fynske Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fynske Bank AS has no effect on the direction of First Farms i.e., First Farms and Fynske Bank go up and down completely randomly.

Pair Corralation between First Farms and Fynske Bank

Assuming the 90 days trading horizon First Farms AS is expected to generate 1.02 times more return on investment than Fynske Bank. However, First Farms is 1.02 times more volatile than Fynske Bank AS. It trades about 0.12 of its potential returns per unit of risk. Fynske Bank AS is currently generating about 0.01 per unit of risk. If you would invest  7,240  in First Farms AS on December 31, 2024 and sell it today you would earn a total of  1,160  from holding First Farms AS or generate 16.02% return on investment over 90 days.

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

First Farms AS  vs.  Fynske Bank AS

First Farms AS

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Farms AS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, First Farms sustained solid returns over the last few months and may actually be approaching a breakup point.

Fynske Bank AS

Risk-Adjusted Performance

Weak

Over the last 90 days Fynske Bank AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Fynske Bank is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Farms and Fynske Bank

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

The idea behind First Farms AS and Fynske 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.