Correlation Between Coloplast and FLSmidth
Can any of the company-specific risk be diversified away by investing in both Coloplast 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 Coloplast and FLSmidth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coloplast AS and FLSmidth Co, you can compare the effects of market volatilities on Coloplast 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 Coloplast with a short position of FLSmidth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coloplast and FLSmidth.
Diversification Opportunities for Coloplast and FLSmidth
Excellent diversification
The 3 months correlation between Coloplast and FLSmidth is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Coloplast AS and FLSmidth Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLSmidth and Coloplast 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 Coloplast AS 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 Coloplast i.e., Coloplast and FLSmidth go up and down completely randomly.
Pair Corralation between Coloplast and FLSmidth
Assuming the 90 days trading horizon Coloplast is expected to generate 2.17 times less return on investment than FLSmidth. But when comparing it to its historical volatility, Coloplast AS is 1.11 times less risky than FLSmidth. It trades about 0.03 of its potential returns per unit of risk. FLSmidth Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 29,960 in FLSmidth Co on September 12, 2024 and sell it today you would earn a total of 8,020 from holding FLSmidth Co or generate 26.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Coloplast AS vs. FLSmidth Co
Performance |
| Timeline |
| Coloplast AS |
| FLSmidth |
Coloplast and FLSmidth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coloplast and FLSmidth
The main advantage of trading using opposite Coloplast and FLSmidth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coloplast 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 Coloplast AS 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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