Correlation Between Nordea Bank and Schouw

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

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

Diversification Opportunities for Nordea Bank and Schouw

0.85

Correlation Coefficient

Nordea Bank  Schouw

Very poor diversification

The 3 months correlation between Nordea and Schouw is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nordea Bank Abp and Schouw Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schouw and Nordea Bank 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 Nordea Bank Abp are associated (or correlated) with Schouw. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schouw has no effect on the direction of Nordea Bank i.e., Nordea Bank and Schouw go up and down completely randomly.

Pair Corralation between Nordea Bank and Schouw

Assuming the 90 days trading horizon Nordea Bank Abp is expected to generate 1.2 times more return on investment than Schouw. However, Nordea Bank is 1.2 times more volatile than Schouw Co. It trades about 0.4 of its potential returns per unit of risk. Schouw Co is currently generating about 0.16 per unit of risk. If you would invest  7,958  in Nordea Bank Abp on December 2, 2024 and sell it today you would earn a total of  1,484  from holding Nordea Bank Abp or generate 18.65% return on investment over 90 days.

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

Nordea Bank Abp  vs.  Schouw Co

Nordea Bank Abp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nordea Bank Abp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Nordea Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Schouw

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schouw Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Schouw is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Nordea Bank and Schouw

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

The idea behind Nordea Bank Abp and Schouw 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.