Correlation Between OMX Copenhagen and Danish Aerospace

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

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

Diversification Opportunities for OMX Copenhagen and Danish Aerospace

0.83

Correlation Coefficient

OMX Copenhagen  Danish Aerospace

Very poor diversification

The 3 months correlation between OMX and Danish is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding OMX Copenhagen All and Danish Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danish Aerospace and OMX Copenhagen 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 OMX Copenhagen All 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 OMX Copenhagen i.e., OMX Copenhagen and Danish Aerospace go up and down completely randomly.

Pair Corralation between OMX Copenhagen and Danish Aerospace

Assuming the 90 days trading horizon OMX Copenhagen All is expected to generate 0.41 times more return on investment than Danish Aerospace. However, OMX Copenhagen All is 2.43 times less risky than Danish Aerospace. It trades about -0.17 of its potential returns per unit of risk. Danish Aerospace is currently generating about -0.12 per unit of risk. If you would invest  178,749  in OMX Copenhagen All on October 23, 2024 and sell it today you would lose (32,493) from holding OMX Copenhagen All or give up 18.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

OMX Copenhagen All  vs.  Danish Aerospace

Pair Trading with OMX Copenhagen and Danish Aerospace

The main advantage of trading using opposite OMX Copenhagen and Danish Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OMX Copenhagen 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 OMX Copenhagen All 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.