Correlation Between Marel Hf and Icelandair Group
Can any of the company-specific risk be diversified away by investing in both Marel Hf and Icelandair Group 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 Marel Hf and Icelandair Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marel hf and Icelandair Group hf, you can compare the effects of market volatilities on Marel Hf and Icelandair Group 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 Marel Hf with a short position of Icelandair Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marel Hf and Icelandair Group.
Diversification Opportunities for Marel Hf and Icelandair Group
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Marel and Icelandair is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Marel hf and Icelandair Group hf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icelandair Group and Marel Hf 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 Marel hf are associated (or correlated) with Icelandair Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icelandair Group has no effect on the direction of Marel Hf i.e., Marel Hf and Icelandair Group go up and down completely randomly.
Pair Corralation between Marel Hf and Icelandair Group
Assuming the 90 days trading horizon Marel Hf is expected to generate 2.31 times less return on investment than Icelandair Group. But when comparing it to its historical volatility, Marel hf is 2.41 times less risky than Icelandair Group. It trades about 0.25 of its potential returns per unit of risk. Icelandair Group hf is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 107.00 in Icelandair Group hf on August 25, 2024 and sell it today you would earn a total of 14.00 from holding Icelandair Group hf or generate 13.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Marel hf vs. Icelandair Group hf
Performance |
| Timeline |
| Marel hf |
| Icelandair Group |
Marel Hf and Icelandair Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Marel Hf and Icelandair Group
The main advantage of trading using opposite Marel Hf and Icelandair Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marel Hf position performs unexpectedly, Icelandair Group 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 Icelandair Group will offset losses from the drop in Icelandair Group's long position.The idea behind Marel hf and Icelandair Group hf 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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