Correlation Between ISS AS and Lollands Bank

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

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

Diversification Opportunities for ISS AS and Lollands Bank

0.14

Correlation Coefficient

ISS AS  Lollands Bank

Average diversification

The 3 months correlation between ISS and Lollands is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding ISS AS and Lollands Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lollands Bank and ISS AS 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 ISS AS are associated (or correlated) with Lollands Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lollands Bank has no effect on the direction of ISS AS i.e., ISS AS and Lollands Bank go up and down completely randomly.

Pair Corralation between ISS AS and Lollands Bank

Assuming the 90 days trading horizon ISS AS is expected to generate 2.54 times less return on investment than Lollands Bank. But when comparing it to its historical volatility, ISS AS is 1.72 times less risky than Lollands Bank. It trades about 0.08 of its potential returns per unit of risk. Lollands Bank is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  55,500  in Lollands Bank on September 24, 2024 and sell it today you would earn a total of  2,000  from holding Lollands Bank or generate 3.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

ISS AS  vs.  Lollands Bank

ISS AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ISS AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ISS AS is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Lollands Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lollands Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Lollands Bank is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ISS AS and Lollands Bank

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

The idea behind ISS AS and Lollands Bank 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.