Correlation Between Vestas Wind and Risma Systems

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

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

Diversification Opportunities for Vestas Wind and Risma Systems

0.12

Correlation Coefficient

Vestas Wind  Risma Systems

Average diversification

The 3 months correlation between Vestas and Risma is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Risma Systems AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Risma Systems AS and Vestas Wind 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 Vestas Wind Systems are associated (or correlated) with Risma Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Risma Systems AS has no effect on the direction of Vestas Wind i.e., Vestas Wind and Risma Systems go up and down completely randomly.

Pair Corralation between Vestas Wind and Risma Systems

Assuming the 90 days trading horizon Vestas Wind Systems is expected to generate 0.61 times more return on investment than Risma Systems. However, Vestas Wind Systems is 1.64 times less risky than Risma Systems. It trades about 0.03 of its potential returns per unit of risk. Risma Systems AS is currently generating about 0.0 per unit of risk. If you would invest  9,808  in Vestas Wind Systems on December 30, 2024 and sell it today you would earn a total of  202.00  from holding Vestas Wind Systems or generate 2.06% return on investment over 90 days.

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

Vestas Wind Systems  vs.  Risma Systems AS

Vestas Wind Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vestas Wind Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vestas Wind is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Risma Systems AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days Risma Systems AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Risma Systems is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vestas Wind and Risma Systems

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

The idea behind Vestas Wind Systems and Risma Systems AS 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.