Correlation Between FLSmidth and NKT AS

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

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

Diversification Opportunities for FLSmidth and NKT AS

0.13

Correlation Coefficient

FLSmidth  NKT AS

Average diversification

The 3 months correlation between FLSmidth and NKT is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding FLSmidth Co and NKT AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NKT AS 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 NKT AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NKT AS has no effect on the direction of FLSmidth i.e., FLSmidth and NKT AS go up and down completely randomly.

Pair Corralation between FLSmidth and NKT AS

Assuming the 90 days trading horizon FLSmidth Co is expected to generate 0.92 times more return on investment than NKT AS. However, FLSmidth Co is 1.08 times less risky than NKT AS. It trades about 0.12 of its potential returns per unit of risk. NKT AS is currently generating about -0.21 per unit of risk. If you would invest  36,480  in FLSmidth Co on November 20, 2024 and sell it today you would earn a total of  1,220  from holding FLSmidth Co or generate 3.34% 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.  NKT AS

FLSmidth

Risk-Adjusted Performance

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 recent stock price disarray, may contribute to short-term losses for the investors.

NKT AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days NKT AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with FLSmidth and NKT AS

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

The idea behind FLSmidth Co and NKT 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.