Correlation Between First Farms and Lollands Bank

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

Diversification Opportunities for First Farms and Lollands Bank

0.03

Correlation Coefficient

First Farms  Lollands Bank

Significant diversification

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

Pair Corralation between First Farms and Lollands Bank

Assuming the 90 days trading horizon First Farms AS is expected to under-perform the Lollands Bank. But the stock apears to be less risky and, when comparing its historical volatility, First Farms AS is 1.0 times less risky than Lollands Bank. The stock trades about -0.03 of its potential returns per unit of risk. The Lollands Bank is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  56,000  in Lollands Bank on September 13, 2024 and sell it today you would earn a total of  1,000.00  from holding Lollands Bank or generate 1.79% return on investment over 90 days.

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

First Farms AS  vs.  Lollands 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 current stock price disturbance, may contribute to short-term losses for the investors.

Lollands Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lollands Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Lollands 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 First Farms and Lollands Bank

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

The idea behind First Farms AS and Lollands 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.

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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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.