Correlation Between Scandinavian Brake and FLSmidth

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

By analyzing existing cross correlation between Scandinavian Brake Systems and FLSmidth Co, you can compare the effects of market volatilities on Scandinavian Brake and FLSmidth 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 Scandinavian Brake with a short position of FLSmidth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scandinavian Brake and FLSmidth.

Diversification Opportunities for Scandinavian Brake and FLSmidth

-0.16

Correlation Coefficient

Scandinavian Brake  FLSmidth

Good diversification

The 3 months correlation between Scandinavian and FLSmidth is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Scandinavian Brake Systems and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and Scandinavian Brake 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 Scandinavian Brake Systems are associated (or correlated) with FLSmidth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FLSmidth has no effect on the direction of Scandinavian Brake i.e., Scandinavian Brake and FLSmidth go up and down completely randomly.

Pair Corralation between Scandinavian Brake and FLSmidth

Assuming the 90 days trading horizon Scandinavian Brake is expected to generate 1.1 times less return on investment than FLSmidth. In addition to that, Scandinavian Brake is 1.83 times more volatile than FLSmidth Co. It trades about 0.02 of its total potential returns per unit of risk. FLSmidth Co is currently generating about 0.03 per unit of volatility. If you would invest  28,875  in FLSmidth Co on October 22, 2024 and sell it today you would earn a total of  7,105  from holding FLSmidth Co or generate 24.61% return on investment over 90 days.

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

Scandinavian Brake Systems  vs.  FLSmidth Co

Scandinavian Brake

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Brake Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Scandinavian Brake is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

FLSmidth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FLSmidth Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, FLSmidth is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Scandinavian Brake and FLSmidth

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

The idea behind Scandinavian Brake Systems and FLSmidth Co 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.