Correlation Between Zealand Pharma and Aquaporin

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

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

Diversification Opportunities for Zealand Pharma and Aquaporin

0.4

Correlation Coefficient

Zealand Pharma  Aquaporin

Very weak diversification

The 3 months correlation between Zealand and Aquaporin is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Zealand Pharma AS and Aquaporin AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aquaporin AS and Zealand Pharma 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 Zealand Pharma AS are associated (or correlated) with Aquaporin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aquaporin AS has no effect on the direction of Zealand Pharma i.e., Zealand Pharma and Aquaporin go up and down completely randomly.

Pair Corralation between Zealand Pharma and Aquaporin

Assuming the 90 days trading horizon Zealand Pharma AS is expected to under-perform the Aquaporin. But the stock apears to be less risky and, when comparing its historical volatility, Zealand Pharma AS is 1.63 times less risky than Aquaporin. The stock trades about -0.06 of its potential returns per unit of risk. The Aquaporin AS is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,150  in Aquaporin AS on October 22, 2024 and sell it today you would lose (250.00) from holding Aquaporin AS or give up 11.63% of portfolio value over 90 days.

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

Zealand Pharma AS  vs.  Aquaporin AS

Zealand Pharma AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zealand Pharma AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Aquaporin AS

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Zealand Pharma and Aquaporin

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

The idea behind Zealand Pharma AS and Aquaporin 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.