Correlation Between OMX Stockholm and FormPipe Software

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

By analyzing existing cross correlation between OMX Stockholm Mid and FormPipe Software AB, you can compare the effects of market volatilities on OMX Stockholm and FormPipe Software 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 OMX Stockholm with a short position of FormPipe Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of OMX Stockholm and FormPipe Software.

Diversification Opportunities for OMX Stockholm and FormPipe Software

0.51

Correlation Coefficient

OMX Stockholm  FormPipe Software

Very weak diversification

The 3 months correlation between OMX and FormPipe is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding OMX Stockholm Mid and FormPipe Software AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FormPipe Software and OMX Stockholm 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 OMX Stockholm Mid are associated (or correlated) with FormPipe Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FormPipe Software has no effect on the direction of OMX Stockholm i.e., OMX Stockholm and FormPipe Software go up and down completely randomly.

Pair Corralation between OMX Stockholm and FormPipe Software

Assuming the 90 days trading horizon OMX Stockholm Mid is expected to generate 0.49 times more return on investment than FormPipe Software. However, OMX Stockholm Mid is 2.05 times less risky than FormPipe Software. It trades about 0.22 of its potential returns per unit of risk. FormPipe Software AB is currently generating about 0.07 per unit of risk. If you would invest  122,099  in OMX Stockholm Mid on February 1, 2024 and sell it today you would earn a total of  30,570  from holding OMX Stockholm Mid or generate 25.04% return on investment over 90 days.

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

OMX Stockholm Mid  vs.  FormPipe Software AB

Pair Trading with OMX Stockholm and FormPipe Software

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

The idea behind OMX Stockholm Mid and FormPipe Software AB 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.