Correlation Between GN Store and Demant A/S

Can any of the company-specific risk be diversified away by investing in both GN Store and Demant A/S 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 GN Store and Demant A/S into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GN Store Nord and Demant AS ADR, you can compare the effects of market volatilities on GN Store and Demant A/S 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 GN Store with a short position of Demant A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of GN Store and Demant A/S.

Diversification Opportunities for GN Store and Demant A/S

0.15

Correlation Coefficient

GN Store  Demant A/S

Average diversification

The 3 months correlation between GNNDY and Demant is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding GN Store Nord and Demant AS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Demant AS ADR and GN Store 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 GN Store Nord are associated (or correlated) with Demant A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Demant AS ADR has no effect on the direction of GN Store i.e., GN Store and Demant A/S go up and down completely randomly.

Pair Corralation between GN Store and Demant A/S

Assuming the 90 days horizon GN Store Nord is expected to under-perform the Demant A/S. In addition to that, GN Store is 2.22 times more volatile than Demant AS ADR. It trades about -0.03 of its total potential returns per unit of risk. Demant AS ADR is currently generating about 0.0 per unit of volatility. If you would invest  1,830  in Demant AS ADR on December 29, 2024 and sell it today you would lose (10.00) from holding Demant AS ADR or give up 0.55% of portfolio value over 90 days.

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

GN Store Nord  vs.  Demant AS ADR

GN Store Nord

Risk-Adjusted Performance

Very Weak

Over the last 90 days GN Store Nord has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Demant AS ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Demant AS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Demant A/S is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GN Store and Demant A/S

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

The idea behind GN Store Nord and Demant AS ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.