Correlation Between NKT AS and FLSmidth

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

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

Diversification Opportunities for NKT AS and FLSmidth

-0.25

Correlation Coefficient

NKT AS  FLSmidth

Very good diversification

The 3 months correlation between NKT and FLSmidth is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding NKT AS and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and NKT 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 NKT 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 NKT AS i.e., NKT AS and FLSmidth go up and down completely randomly.

Pair Corralation between NKT AS and FLSmidth

Assuming the 90 days trading horizon NKT AS is expected to under-perform the FLSmidth. In addition to that, NKT AS is 1.59 times more volatile than FLSmidth Co. It trades about -0.3 of its total potential returns per unit of risk. FLSmidth Co is currently generating about 0.15 per unit of volatility. If you would invest  36,400  in FLSmidth Co on August 31, 2024 and sell it today you would earn a total of  1,680  from holding FLSmidth Co or generate 4.62% return on investment over 90 days.

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

NKT AS  vs.  FLSmidth Co

NKT AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NKT 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 basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

FLSmidth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, FLSmidth may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with NKT AS and FLSmidth

The main advantage of trading using opposite NKT AS and FLSmidth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NKT AS 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 NKT 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.