Correlation Between FLSmidth and LUXOR-B

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

By analyzing existing cross correlation between FLSmidth Co and Investeringsselskabet Luxor AS, you can compare the effects of market volatilities on FLSmidth and LUXOR-B 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 LUXOR-B. Check out your portfolio center. Please also check ongoing floating volatility patterns of FLSmidth and LUXOR-B.

Diversification Opportunities for FLSmidth and LUXOR-B

-0.38

Correlation Coefficient

FLSmidth  LUXOR-B

Very good diversification

The 3 months correlation between FLSmidth and LUXOR-B is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding FLSmidth Co and Investeringsselskabet Luxor AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investeringsselskabet 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 LUXOR-B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investeringsselskabet has no effect on the direction of FLSmidth i.e., FLSmidth and LUXOR-B go up and down completely randomly.

Pair Corralation between FLSmidth and LUXOR-B

Assuming the 90 days trading horizon FLSmidth Co is expected to under-perform the LUXOR-B. But the stock apears to be less risky and, when comparing its historical volatility, FLSmidth Co is 1.77 times less risky than LUXOR-B. The stock trades about -0.2 of its potential returns per unit of risk. The Investeringsselskabet Luxor AS is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  55,500  in Investeringsselskabet Luxor AS on September 23, 2024 and sell it today you would earn a total of  5,500  from holding Investeringsselskabet Luxor AS or generate 9.91% return on investment over 90 days.

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

FLSmidth Co  vs.  Investeringsselskabet Luxor AS

FLSmidth

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, FLSmidth is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Investeringsselskabet

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Investeringsselskabet Luxor AS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LUXOR-B is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FLSmidth and LUXOR-B

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

The idea behind FLSmidth Co and Investeringsselskabet Luxor 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.