Correlation Between FLSmidth and Bavarian Nordic
Can any of the company-specific risk be diversified away by investing in both FLSmidth and Bavarian Nordic 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 FLSmidth and Bavarian Nordic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FLSmidth Co and Bavarian Nordic, you can compare the effects of market volatilities on FLSmidth and Bavarian Nordic 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 FLSmidth with a short position of Bavarian Nordic. Check out your portfolio center. Please also check ongoing floating volatility patterns of FLSmidth and Bavarian Nordic.
Diversification Opportunities for FLSmidth and Bavarian Nordic
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between FLSmidth and Bavarian is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding FLSmidth Co and Bavarian Nordic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bavarian Nordic and FLSmidth 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 FLSmidth Co are associated (or correlated) with Bavarian Nordic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bavarian Nordic has no effect on the direction of FLSmidth i.e., FLSmidth and Bavarian Nordic go up and down completely randomly.
Pair Corralation between FLSmidth and Bavarian Nordic
Assuming the 90 days trading horizon FLSmidth is expected to generate 1.3 times less return on investment than Bavarian Nordic. But when comparing it to its historical volatility, FLSmidth Co is 1.84 times less risky than Bavarian Nordic. It trades about 0.03 of its potential returns per unit of risk. Bavarian Nordic is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 18,355 in Bavarian Nordic on August 28, 2024 and sell it today you would earn a total of 1,465 from holding Bavarian Nordic or generate 7.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
FLSmidth Co vs. Bavarian Nordic
Performance |
| Timeline |
| FLSmidth |
| Bavarian Nordic |
FLSmidth and Bavarian Nordic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FLSmidth and Bavarian Nordic
The main advantage of trading using opposite FLSmidth and Bavarian Nordic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FLSmidth position performs unexpectedly, Bavarian Nordic 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 Bavarian Nordic will offset losses from the drop in Bavarian Nordic's long position.The idea behind FLSmidth Co and Bavarian Nordic 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.| Bavarian Nordic vs. Zealand Pharma AS | Bavarian Nordic vs. Ambu AS | Bavarian Nordic vs. BioPorto | Bavarian Nordic vs. Genmab AS |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. |