Correlation Between Vestas Wind and Spar Nord

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

Diversification Opportunities for Vestas Wind and Spar Nord

-0.37

Correlation Coefficient

Vestas Wind  Spar Nord

Very good diversification

The 3 months correlation between Vestas and Spar is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Spar Nord Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spar Nord Bank 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 Spar Nord. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spar Nord Bank has no effect on the direction of Vestas Wind i.e., Vestas Wind and Spar Nord go up and down completely randomly.

Pair Corralation between Vestas Wind and Spar Nord

Assuming the 90 days trading horizon Vestas Wind is expected to generate 11.3 times less return on investment than Spar Nord. But when comparing it to its historical volatility, Vestas Wind Systems is 2.12 times less risky than Spar Nord. It trades about 0.03 of its potential returns per unit of risk. Spar Nord Bank is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  13,720  in Spar Nord Bank on December 4, 2024 and sell it today you would earn a total of  7,130  from holding Spar Nord Bank or generate 51.97% return on investment over 90 days.

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

Vestas Wind Systems  vs.  Spar Nord Bank

Vestas Wind Systems

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vestas Wind Systems are ranked lower than 2 (%) 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.

Spar Nord Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spar Nord Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Spar Nord displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vestas Wind and Spar Nord

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

The idea behind Vestas Wind Systems and Spar Nord Bank 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.