Correlation Between FLSmidth and Vestas Wind
Can any of the company-specific risk be diversified away by investing in both FLSmidth and Vestas Wind 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 Vestas Wind into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FLSmidth Co and Vestas Wind Systems, you can compare the effects of market volatilities on FLSmidth and Vestas Wind 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 Vestas Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of FLSmidth and Vestas Wind.
Diversification Opportunities for FLSmidth and Vestas Wind
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between FLSmidth and Vestas is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding FLSmidth Co and Vestas Wind Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vestas Wind Systems 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 Vestas Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vestas Wind Systems has no effect on the direction of FLSmidth i.e., FLSmidth and Vestas Wind go up and down completely randomly.
Pair Corralation between FLSmidth and Vestas Wind
Assuming the 90 days trading horizon FLSmidth Co is expected to generate 0.68 times more return on investment than Vestas Wind. However, FLSmidth Co is 1.46 times less risky than Vestas Wind. It trades about 0.05 of its potential returns per unit of risk. Vestas Wind Systems is currently generating about -0.04 per unit of risk. 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 | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
FLSmidth Co vs. Vestas Wind Systems
Performance |
| Timeline |
| FLSmidth |
| Vestas Wind Systems |
FLSmidth and Vestas Wind Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FLSmidth and Vestas Wind
The main advantage of trading using opposite FLSmidth and Vestas Wind positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FLSmidth position performs unexpectedly, Vestas Wind 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 Vestas Wind will offset losses from the drop in Vestas Wind's long position.The idea behind FLSmidth Co and Vestas Wind Systems 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.| Vestas Wind vs. Genmab AS | Vestas Wind vs. Danske Bank AS | Vestas Wind vs. Ambu AS | Vestas Wind vs. FLSmidth Co |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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