Can any of the company-specific risk be diversified away by investing in both Icelandair Group and Arion Banki 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 Icelandair Group and Arion Banki into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Icelandair Group hf and Arion banki hf, you can compare the effects of market volatilities on Icelandair Group and Arion Banki 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 Icelandair Group with a short position of Arion Banki. Check out your portfolio center. Please also check ongoing floating volatility patterns of Icelandair Group and Arion Banki.
Diversification Opportunities for Icelandair Group and Arion Banki
The 3 months correlation between Icelandair and Arion is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Icelandair Group hf and Arion banki hf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arion banki hf and Icelandair Group 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 Icelandair Group hf are associated (or correlated) with Arion Banki. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arion banki hf has no effect on the direction of Icelandair Group i.e., Icelandair Group and Arion Banki go up and down completely randomly.
Pair Corralation between Icelandair Group and Arion Banki
Assuming the 90 days trading horizon Icelandair Group hf is expected to under-perform the Arion Banki. In addition to that, Icelandair Group is 1.62 times more volatile than Arion banki hf. It trades about -0.13 of its total potential returns per unit of risk. Arion banki hf is currently generating about 0.01 per unit of volatility. If you would invest 12,950 in Arion banki hf on March 6, 2024 and sell it today you would earn a total of 350.00 from holding Arion banki hf or generate 2.7% return on investment over 90 days.
Over the last 90 days Icelandair Group hf has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Over the last 90 days Arion banki hf has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.