Correlation Between FLSmidth and ROCKWOOL International

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Can any of the company-specific risk be diversified away by investing in both FLSmidth and ROCKWOOL International 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 ROCKWOOL International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FLSmidth Co and ROCKWOOL International AS, you can compare the effects of market volatilities on FLSmidth and ROCKWOOL International 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 ROCKWOOL International. Check out your portfolio center. Please also check ongoing floating volatility patterns of FLSmidth and ROCKWOOL International.

Diversification Opportunities for FLSmidth and ROCKWOOL International

0.46
  Correlation Coefficient

Very weak diversification

The 3 months correlation between FLSmidth and ROCKWOOL is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding FLSmidth Co and ROCKWOOL International AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ROCKWOOL International 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 ROCKWOOL International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ROCKWOOL International has no effect on the direction of FLSmidth i.e., FLSmidth and ROCKWOOL International go up and down completely randomly.

Pair Corralation between FLSmidth and ROCKWOOL International

Assuming the 90 days trading horizon FLSmidth is expected to generate 3.48 times less return on investment than ROCKWOOL International. But when comparing it to its historical volatility, FLSmidth Co is 1.94 times less risky than ROCKWOOL International. It trades about 0.08 of its potential returns per unit of risk. ROCKWOOL International AS is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  259,000  in ROCKWOOL International AS on November 29, 2024 and sell it today you would earn a total of  28,600  from holding ROCKWOOL International AS or generate 11.04% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

FLSmidth Co  vs.  ROCKWOOL International AS

 Performance 
       Timeline  
FLSmidth 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
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.
ROCKWOOL International 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in ROCKWOOL International AS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, ROCKWOOL International sustained solid returns over the last few months and may actually be approaching a breakup point.

FLSmidth and ROCKWOOL International Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with FLSmidth and ROCKWOOL International

The main advantage of trading using opposite FLSmidth and ROCKWOOL International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FLSmidth position performs unexpectedly, ROCKWOOL International 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 ROCKWOOL International will offset losses from the drop in ROCKWOOL International's long position.
The idea behind FLSmidth Co and ROCKWOOL International 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.
Check out your portfolio center.
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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