Correlation Between FLSmidth and Laan Spar

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

By analyzing existing cross correlation between FLSmidth Co and Laan Spar Bank, you can compare the effects of market volatilities on FLSmidth and Laan Spar 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 Laan Spar. Check out your portfolio center. Please also check ongoing floating volatility patterns of FLSmidth and Laan Spar.

Diversification Opportunities for FLSmidth and Laan Spar

0.03

Correlation Coefficient

FLSmidth  Laan Spar

Significant diversification

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

Pair Corralation between FLSmidth and Laan Spar

Assuming the 90 days trading horizon FLSmidth Co is expected to generate 1.06 times more return on investment than Laan Spar. However, FLSmidth is 1.06 times more volatile than Laan Spar Bank. It trades about 0.19 of its potential returns per unit of risk. Laan Spar Bank is currently generating about 0.02 per unit of risk. If you would invest  32,120  in FLSmidth Co on September 7, 2024 and sell it today you would earn a total of  6,380  from holding FLSmidth Co or generate 19.86% return on investment over 90 days.

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

FLSmidth Co  vs.  Laan Spar Bank

FLSmidth

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, FLSmidth displayed solid returns over the last few months and may actually be approaching a breakup point.

Laan Spar Bank

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with FLSmidth and Laan Spar

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

The idea behind FLSmidth Co and Laan Spar 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.