Correlation Between Koninklijke Philips and Flow Traders

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

By analyzing existing cross correlation between Koninklijke Philips NV and Flow Traders BV, you can compare the effects of market volatilities on Koninklijke Philips and Flow Traders 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 Koninklijke Philips with a short position of Flow Traders. Check out your portfolio center. Please also check ongoing floating volatility patterns of Koninklijke Philips and Flow Traders.

Diversification Opportunities for Koninklijke Philips and Flow Traders

-0.26

Correlation Coefficient

Koninklijke Philips  Flow Traders

Very good diversification

The 3 months correlation between Koninklijke and Flow is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Koninklijke Philips NV and Flow Traders BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flow Traders BV and Koninklijke Philips 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 Koninklijke Philips NV are associated (or correlated) with Flow Traders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flow Traders BV has no effect on the direction of Koninklijke Philips i.e., Koninklijke Philips and Flow Traders go up and down completely randomly.

Pair Corralation between Koninklijke Philips and Flow Traders

Assuming the 90 days trading horizon Koninklijke Philips NV is expected to under-perform the Flow Traders. In addition to that, Koninklijke Philips is 1.8 times more volatile than Flow Traders BV. It trades about -0.05 of its total potential returns per unit of risk. Flow Traders BV is currently generating about 0.18 per unit of volatility. If you would invest  1,806  in Flow Traders BV on September 12, 2024 and sell it today you would earn a total of  302.00  from holding Flow Traders BV or generate 16.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Koninklijke Philips NV  vs.  Flow Traders BV

Koninklijke Philips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Koninklijke Philips NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Flow Traders BV

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Flow Traders BV are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flow Traders unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Koninklijke Philips and Flow Traders

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

The idea behind Koninklijke Philips NV and Flow Traders BV 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.