Correlation Between Kongsberg Gruppen and Pareto Bank

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

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

Diversification Opportunities for Kongsberg Gruppen and Pareto Bank

-0.19

Correlation Coefficient

Kongsberg Gruppen  Pareto Bank

Good diversification

The 3 months correlation between Kongsberg and Pareto is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Kongsberg Gruppen ASA and Pareto Bank ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pareto Bank ASA and Kongsberg Gruppen 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 Kongsberg Gruppen ASA are associated (or correlated) with Pareto Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pareto Bank ASA has no effect on the direction of Kongsberg Gruppen i.e., Kongsberg Gruppen and Pareto Bank go up and down completely randomly.

Pair Corralation between Kongsberg Gruppen and Pareto Bank

Assuming the 90 days trading horizon Kongsberg Gruppen ASA is expected to generate 1.9 times more return on investment than Pareto Bank. However, Kongsberg Gruppen is 1.9 times more volatile than Pareto Bank ASA. It trades about 0.13 of its potential returns per unit of risk. Pareto Bank ASA is currently generating about 0.02 per unit of risk. If you would invest  109,398  in Kongsberg Gruppen ASA on September 14, 2024 and sell it today you would earn a total of  20,402  from holding Kongsberg Gruppen ASA or generate 18.65% return on investment over 90 days.

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

Kongsberg Gruppen ASA  vs.  Pareto Bank ASA

Kongsberg Gruppen ASA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kongsberg Gruppen ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, Kongsberg Gruppen disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pareto Bank ASA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pareto Bank ASA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Pareto Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Kongsberg Gruppen and Pareto Bank

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

The idea behind Kongsberg Gruppen ASA and Pareto Bank ASA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.