Correlation Between OMX Stockholm and Modern Times

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Can any of the company-specific risk be diversified away by investing in both OMX Stockholm and Modern Times 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 Stockholm and Modern Times into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between OMX Stockholm Mid and Modern Times Group, you can compare the effects of market volatilities on OMX Stockholm and Modern Times 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 Stockholm with a short position of Modern Times. Check out your portfolio center. Please also check ongoing floating volatility patterns of OMX Stockholm and Modern Times.

Diversification Opportunities for OMX Stockholm and Modern Times

-0.59
  Correlation Coefficient

Excellent diversification

The 3 months correlation between OMX and Modern is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding OMX Stockholm Mid and Modern Times Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modern Times Group and OMX Stockholm 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 Stockholm Mid are associated (or correlated) with Modern Times. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modern Times Group has no effect on the direction of OMX Stockholm i.e., OMX Stockholm and Modern Times go up and down completely randomly.
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Pair Corralation between OMX Stockholm and Modern Times

Assuming the 90 days trading horizon OMX Stockholm Mid is expected to generate 0.36 times more return on investment than Modern Times. However, OMX Stockholm Mid is 2.76 times less risky than Modern Times. It trades about 0.05 of its potential returns per unit of risk. Modern Times Group is currently generating about 0.02 per unit of risk. If you would invest  132,949  in OMX Stockholm Mid on September 23, 2024 and sell it today you would earn a total of  30,574  from holding OMX Stockholm Mid or generate 23.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy99.8%
ValuesDaily Returns

OMX Stockholm Mid  vs.  Modern Times Group

 Performance 
       Timeline  

OMX Stockholm and Modern Times Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with OMX Stockholm and Modern Times

The main advantage of trading using opposite OMX Stockholm and Modern Times positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OMX Stockholm position performs unexpectedly, Modern Times 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 Modern Times will offset losses from the drop in Modern Times' long position.
The idea behind OMX Stockholm Mid and Modern Times Group 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.

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