Correlation Between Prime Office and Nordea Bank

Can any of the company-specific risk be diversified away by investing in both Prime Office and Nordea Bank 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 Nordea Bank 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 Nordea Bank Abp, you can compare the effects of market volatilities on Prime Office and Nordea Bank 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 Nordea Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Office and Nordea Bank.

Diversification Opportunities for Prime Office and Nordea Bank

-0.31

Correlation Coefficient

Prime Office  Nordea Bank

Very good diversification

The 3 months correlation between Prime and Nordea is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Prime Office AS and Nordea Bank Abp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordea Bank Abp 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 Nordea Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordea Bank Abp has no effect on the direction of Prime Office i.e., Prime Office and Nordea Bank go up and down completely randomly.

Pair Corralation between Prime Office and Nordea Bank

Assuming the 90 days trading horizon Prime Office AS is expected to under-perform the Nordea Bank. In addition to that, Prime Office is 1.44 times more volatile than Nordea Bank Abp. It trades about -0.02 of its total potential returns per unit of risk. Nordea Bank Abp is currently generating about 0.16 per unit of volatility. If you would invest  7,782  in Nordea Bank Abp on December 25, 2024 and sell it today you would earn a total of  1,114  from holding Nordea Bank Abp or generate 14.32% return on investment over 90 days.

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

Prime Office AS  vs.  Nordea Bank Abp

Prime Office AS

Risk-Adjusted Performance

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.

Nordea Bank Abp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nordea Bank Abp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Nordea Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prime Office and Nordea Bank

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

The idea behind Prime Office AS and Nordea Bank Abp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.