Correlation Between Sparebank and Extra Space

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

By analyzing existing cross correlation between Sparebank 1 SR and Extra Space Storage, you can compare the effects of market volatilities on Sparebank and Extra Space 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 Sparebank with a short position of Extra Space. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Extra Space.

Diversification Opportunities for Sparebank and Extra Space

-0.67

Correlation Coefficient

Sparebank  Extra Space

Excellent diversification

The 3 months correlation between Sparebank and Extra is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SR and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage and Sparebank 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 Sparebank 1 SR are associated (or correlated) with Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Sparebank i.e., Sparebank and Extra Space go up and down completely randomly.

Pair Corralation between Sparebank and Extra Space

Assuming the 90 days trading horizon Sparebank is expected to generate 1.43 times less return on investment than Extra Space. But when comparing it to its historical volatility, Sparebank 1 SR is 1.81 times less risky than Extra Space. It trades about 0.07 of its potential returns per unit of risk. Extra Space Storage is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  11,413  in Extra Space Storage on September 26, 2024 and sell it today you would earn a total of  3,466  from holding Extra Space Storage or generate 30.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.04%
Values	Daily Returns

Sparebank 1 SR  vs.  Extra Space Storage

Sparebank 1 SR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Sparebank and Extra Space

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

The idea behind Sparebank 1 SR and Extra Space Storage 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.