Correlation Between Spar Nord and FLSmidth

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

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

Diversification Opportunities for Spar Nord and FLSmidth

0.45

Correlation Coefficient

Spar Nord  FLSmidth

Very weak diversification

The 3 months correlation between Spar and FLSmidth is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Spar Nord Bank and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and Spar Nord 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 Spar Nord Bank 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 Spar Nord i.e., Spar Nord and FLSmidth go up and down completely randomly.

Pair Corralation between Spar Nord and FLSmidth

Assuming the 90 days trading horizon Spar Nord Bank is expected to generate 0.9 times more return on investment than FLSmidth. However, Spar Nord Bank is 1.11 times less risky than FLSmidth. It trades about 0.06 of its potential returns per unit of risk. FLSmidth Co is currently generating about 0.03 per unit of risk. If you would invest  12,140  in Spar Nord Bank on September 3, 2024 and sell it today you would earn a total of  1,780  from holding Spar Nord Bank or generate 14.66% return on investment over 90 days.

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

Spar Nord Bank  vs.  FLSmidth Co

Spar Nord Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spar Nord Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Spar Nord may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FLSmidth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FLSmidth Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, FLSmidth displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spar Nord and FLSmidth

The main advantage of trading using opposite Spar Nord and FLSmidth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spar Nord 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 Spar Nord Bank 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.