Correlation Between Prime Office and Fast Ejendom

Can any of the company-specific risk be diversified away by investing in both Prime Office and Fast Ejendom 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 Prime Office and Fast Ejendom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prime Office AS and Fast Ejendom, you can compare the effects of market volatilities on Prime Office and Fast Ejendom 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 Prime Office with a short position of Fast Ejendom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Office and Fast Ejendom.

Diversification Opportunities for Prime Office and Fast Ejendom

-0.17

Correlation Coefficient

Prime Office  Fast Ejendom

Good diversification

The 3 months correlation between Prime and Fast is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Prime Office AS and Fast Ejendom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fast Ejendom and Prime Office 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 Prime Office AS are associated (or correlated) with Fast Ejendom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fast Ejendom has no effect on the direction of Prime Office i.e., Prime Office and Fast Ejendom go up and down completely randomly.

Pair Corralation between Prime Office and Fast Ejendom

Assuming the 90 days trading horizon Prime Office AS is expected to under-perform the Fast Ejendom. In addition to that, Prime Office is 1.18 times more volatile than Fast Ejendom. It trades about -0.02 of its total potential returns per unit of risk. Fast Ejendom is currently generating about -0.01 per unit of volatility. If you would invest  13,500  in Fast Ejendom on September 12, 2024 and sell it today you would lose (1,500) from holding Fast Ejendom or give up 11.11% of portfolio value over 90 days.

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

Prime Office AS  vs.  Fast Ejendom

Prime Office AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prime Office AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Prime Office is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Fast Ejendom

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Ejendom are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Fast Ejendom is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Prime Office and Fast Ejendom

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

The idea behind Prime Office AS and Fast Ejendom 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.