Correlation Between OMX Copenhagen and Scandinavian Brake

Can any of the company-specific risk be diversified away by investing in both OMX Copenhagen and Scandinavian Brake 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 Scandinavian Brake 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 Scandinavian Brake Systems, you can compare the effects of market volatilities on OMX Copenhagen and Scandinavian Brake 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 Scandinavian Brake. Check out your portfolio center. Please also check ongoing floating volatility patterns of OMX Copenhagen and Scandinavian Brake.

Diversification Opportunities for OMX Copenhagen and Scandinavian Brake

-0.15

Correlation Coefficient

OMX Copenhagen  Scandinavian Brake

Good diversification

The 3 months correlation between OMX and Scandinavian is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding OMX Copenhagen All and Scandinavian Brake Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Brake 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 Scandinavian Brake. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Brake has no effect on the direction of OMX Copenhagen i.e., OMX Copenhagen and Scandinavian Brake go up and down completely randomly.

Pair Corralation between OMX Copenhagen and Scandinavian Brake

Assuming the 90 days trading horizon OMX Copenhagen All is expected to under-perform the Scandinavian Brake. In addition to that, OMX Copenhagen is 2.41 times more volatile than Scandinavian Brake Systems. It trades about -0.18 of its total potential returns per unit of risk. Scandinavian Brake Systems is currently generating about 0.08 per unit of volatility. If you would invest  1,200  in Scandinavian Brake Systems on October 4, 2024 and sell it today you would earn a total of  20.00  from holding Scandinavian Brake Systems or generate 1.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

OMX Copenhagen All  vs.  Scandinavian Brake Systems

Pair Trading with OMX Copenhagen and Scandinavian Brake

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

The idea behind OMX Copenhagen All and Scandinavian Brake Systems 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.