Correlation Between Ringkjoebing Landbobank and Embla Medical

Can any of the company-specific risk be diversified away by investing in both Ringkjoebing Landbobank and Embla Medical 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 Ringkjoebing Landbobank and Embla Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ringkjoebing Landbobank AS and Embla Medical hf, you can compare the effects of market volatilities on Ringkjoebing Landbobank and Embla Medical 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 Ringkjoebing Landbobank with a short position of Embla Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ringkjoebing Landbobank and Embla Medical.

Diversification Opportunities for Ringkjoebing Landbobank and Embla Medical

0.8

Correlation Coefficient

Ringkjoebing Landbobank  Embla Medical

Very poor diversification

The 3 months correlation between Ringkjoebing and Embla is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ringkjoebing Landbobank AS and Embla Medical hf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embla Medical hf and Ringkjoebing Landbobank 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 Ringkjoebing Landbobank AS are associated (or correlated) with Embla Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embla Medical hf has no effect on the direction of Ringkjoebing Landbobank i.e., Ringkjoebing Landbobank and Embla Medical go up and down completely randomly.

Pair Corralation between Ringkjoebing Landbobank and Embla Medical

Assuming the 90 days trading horizon Ringkjoebing Landbobank is expected to generate 2.33 times less return on investment than Embla Medical. But when comparing it to its historical volatility, Ringkjoebing Landbobank AS is 1.2 times less risky than Embla Medical. It trades about 0.08 of its potential returns per unit of risk. Embla Medical hf is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,070  in Embla Medical hf on September 3, 2024 and sell it today you would earn a total of  420.00  from holding Embla Medical hf or generate 13.68% return on investment over 90 days.

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

Ringkjoebing Landbobank AS  vs.  Embla Medical hf

Ringkjoebing Landbobank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ringkjoebing Landbobank AS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ringkjoebing Landbobank is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Embla Medical hf

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embla Medical hf are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Embla Medical exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ringkjoebing Landbobank and Embla Medical

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

The idea behind Ringkjoebing Landbobank AS and Embla Medical hf 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.