Correlation Between FLSmidth and Bang Olufsen

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

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

Diversification Opportunities for FLSmidth and Bang Olufsen

0.32

Correlation Coefficient

FLSmidth  Bang Olufsen

Weak diversification

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

Pair Corralation between FLSmidth and Bang Olufsen

Assuming the 90 days trading horizon FLSmidth Co is expected to under-perform the Bang Olufsen. But the stock apears to be less risky and, when comparing its historical volatility, FLSmidth Co is 1.38 times less risky than Bang Olufsen. The stock trades about -0.01 of its potential returns per unit of risk. The Bang Olufsen is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  939.00  in Bang Olufsen on December 29, 2024 and sell it today you would earn a total of  441.00  from holding Bang Olufsen or generate 46.96% return on investment over 90 days.

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

FLSmidth Co  vs.  Bang Olufsen

FLSmidth

Risk-Adjusted Performance

Very Weak

Over the last 90 days FLSmidth Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, FLSmidth is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Bang Olufsen

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bang Olufsen are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Bang Olufsen displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FLSmidth and Bang Olufsen

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

The idea behind FLSmidth Co and Bang Olufsen 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.