Correlation Between Danske Bank and Skjern Bank

Can any of the company-specific risk be diversified away by investing in both Danske Bank and Skjern Bank 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 Danske Bank and Skjern Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Danske Bank AS and Skjern Bank AS, you can compare the effects of market volatilities on Danske Bank and Skjern Bank 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 Danske Bank with a short position of Skjern Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danske Bank and Skjern Bank.

Diversification Opportunities for Danske Bank and Skjern Bank

0.07

Correlation Coefficient

Danske Bank  Skjern Bank

Significant diversification

The 3 months correlation between Danske and Skjern is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Danske Bank AS and Skjern Bank AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skjern Bank AS and Danske Bank 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 Danske Bank AS are associated (or correlated) with Skjern Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skjern Bank AS has no effect on the direction of Danske Bank i.e., Danske Bank and Skjern Bank go up and down completely randomly.

Pair Corralation between Danske Bank and Skjern Bank

Assuming the 90 days trading horizon Danske Bank is expected to generate 2.77 times less return on investment than Skjern Bank. But when comparing it to its historical volatility, Danske Bank AS is 2.52 times less risky than Skjern Bank. It trades about 0.23 of its potential returns per unit of risk. Skjern Bank AS is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  15,800  in Skjern Bank AS on September 13, 2024 and sell it today you would earn a total of  2,100  from holding Skjern Bank AS or generate 13.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Danske Bank AS  vs.  Skjern Bank AS

Danske Bank AS

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Danske Bank AS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Danske Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Skjern Bank AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Skjern Bank AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Skjern Bank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Danske Bank and Skjern Bank

The main advantage of trading using opposite Danske Bank and Skjern Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danske Bank position performs unexpectedly, Skjern Bank 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 Skjern Bank will offset losses from the drop in Skjern Bank's long position.

The idea behind Danske Bank AS and Skjern Bank AS 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.