Correlation Between HH International and FLSmidth

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

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

Diversification Opportunities for HH International and FLSmidth

-0.66

Correlation Coefficient

HH International  FLSmidth

Excellent diversification

The 3 months correlation between HH International and FLSmidth is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding HH International AS and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and HH International 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 HH International AS are associated (or correlated) with FLSmidth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FLSmidth has no effect on the direction of HH International i.e., HH International and FLSmidth go up and down completely randomly.

Pair Corralation between HH International and FLSmidth

Assuming the 90 days horizon HH International AS is expected to under-perform the FLSmidth. But the stock apears to be less risky and, when comparing its historical volatility, HH International AS is 1.09 times less risky than FLSmidth. The stock trades about -0.19 of its potential returns per unit of risk. The FLSmidth Co is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  33,100  in FLSmidth Co on September 15, 2024 and sell it today you would earn a total of  4,340  from holding FLSmidth Co or generate 13.11% return on investment over 90 days.

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

HH International AS  vs.  FLSmidth Co

HH International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HH International 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 fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

FLSmidth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 10 (%) 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.

Pair Trading with HH International and FLSmidth

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

The idea behind HH International AS and FLSmidth Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.