Correlation Between OMX Copenhagen and Sparinvest INDEX

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

Diversification Opportunities for OMX Copenhagen and Sparinvest INDEX

-0.14

Correlation Coefficient

OMX Copenhagen  Sparinvest INDEX

Good diversification

The 3 months correlation between OMX and Sparinvest is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding OMX Copenhagen All and Sparinvest INDEX Europa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparinvest INDEX Europa 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 Sparinvest INDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparinvest INDEX Europa has no effect on the direction of OMX Copenhagen i.e., OMX Copenhagen and Sparinvest INDEX go up and down completely randomly.

Pair Corralation between OMX Copenhagen and Sparinvest INDEX

Assuming the 90 days trading horizon OMX Copenhagen All is expected to under-perform the Sparinvest INDEX. In addition to that, OMX Copenhagen is 1.95 times more volatile than Sparinvest INDEX Europa. It trades about -0.07 of its total potential returns per unit of risk. Sparinvest INDEX Europa is currently generating about 0.1 per unit of volatility. If you would invest  12,140  in Sparinvest INDEX Europa on December 3, 2024 and sell it today you would earn a total of  659.00  from holding Sparinvest INDEX Europa or generate 5.43% return on investment over 90 days.

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

OMX Copenhagen All  vs.  Sparinvest INDEX Europa

Pair Trading with OMX Copenhagen and Sparinvest INDEX

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

The idea behind OMX Copenhagen All and Sparinvest INDEX Europa 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.