Correlation Between AP Mller and Danish Aerospace

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

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

Diversification Opportunities for AP Mller and Danish Aerospace

-0.2

Correlation Coefficient

AP Mller  Danish Aerospace

Good diversification

The 3 months correlation between MAERSK-A and Danish is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding AP Mller and Danish Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danish Aerospace and AP Mller 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 AP Mller are associated (or correlated) with Danish Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danish Aerospace has no effect on the direction of AP Mller i.e., AP Mller and Danish Aerospace go up and down completely randomly.

Pair Corralation between AP Mller and Danish Aerospace

Assuming the 90 days trading horizon AP Mller is expected to under-perform the Danish Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, AP Mller is 3.51 times less risky than Danish Aerospace. The stock trades about -0.39 of its potential returns per unit of risk. The Danish Aerospace is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  298.00  in Danish Aerospace on October 25, 2024 and sell it today you would earn a total of  30.00  from holding Danish Aerospace or generate 10.07% return on investment over 90 days.

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

AP Mller   vs.  Danish Aerospace

AP Mller

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AP Mller has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AP Mller is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Danish Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with AP Mller and Danish Aerospace

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

The idea behind AP Mller and Danish Aerospace 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.