Correlation Between Kvika Banki and Arion Banki

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

By analyzing existing cross correlation between Kvika banki hf and Arion banki hf, you can compare the effects of market volatilities on Kvika Banki and Arion Banki 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 Kvika Banki with a short position of Arion Banki. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kvika Banki and Arion Banki.

Diversification Opportunities for Kvika Banki and Arion Banki

0.63

Correlation Coefficient

Kvika Banki  Arion Banki

Poor diversification

The 3 months correlation between Kvika and Arion is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Kvika banki hf and Arion banki hf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arion banki hf and Kvika Banki 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 Kvika banki hf are associated (or correlated) with Arion Banki. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arion banki hf has no effect on the direction of Kvika Banki i.e., Kvika Banki and Arion Banki go up and down completely randomly.

Pair Corralation between Kvika Banki and Arion Banki

Assuming the 90 days trading horizon Kvika banki hf is expected to under-perform the Arion Banki. In addition to that, Kvika Banki is 2.01 times more volatile than Arion banki hf. It trades about -0.1 of its total potential returns per unit of risk. Arion banki hf is currently generating about -0.06 per unit of volatility. If you would invest  16,700  in Arion banki hf on December 30, 2024 and sell it today you would lose (1,150) from holding Arion banki hf or give up 6.89% of portfolio value over 90 days.

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

Kvika banki hf  vs.  Arion banki hf

Kvika banki hf

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kvika banki hf has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Arion banki hf

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arion banki hf has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Arion Banki is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Kvika Banki and Arion Banki

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

The idea behind Kvika banki hf and Arion banki hf 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.