Can any of the company-specific risk be diversified away by investing in both Kvika Banki 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 Kvika Banki and Arion Banki into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kvika banki hf and Arion banki hf, you can compare the effects of market volatilities on Kvika Banki 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 Kvika Banki with a short position of Arion Banki. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kvika Banki and Arion Banki.
Diversification Opportunities for Kvika Banki and Arion Banki
The 3 months correlation between Kvika and Arion is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Kvika banki 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 Kvika Banki 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 Kvika banki 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 Kvika Banki i.e., Kvika Banki and Arion Banki go up and down completely randomly.
Pair Corralation between Kvika Banki and Arion Banki
Assuming the 90 days trading horizon Kvika banki hf is expected to generate 1.31 times more return on investment than Arion Banki. However, Kvika Banki is 1.31 times more volatile than Arion banki hf. It trades about -0.01 of its potential returns per unit of risk. Arion banki hf is currently generating about -0.19 per unit of risk. If you would invest 1,560 in Kvika banki hf on March 6, 2024 and sell it today you would lose (30.00) from holding Kvika banki hf or give up 1.92% of portfolio value over 90 days.
Over the last 90 days Kvika banki hf has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Kvika Banki is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.
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.