Correlation Between Sparebank and BW LPG

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

By analyzing existing cross correlation between Sparebank 1 SMN and BW LPG, you can compare the effects of market volatilities on Sparebank and BW LPG 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 BW LPG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and BW LPG.

Diversification Opportunities for Sparebank and BW LPG

-0.79

Correlation Coefficient

Sparebank  BW LPG

Pay attention - limited upside

The 3 months correlation between Sparebank and BWLPG is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SMN and BW LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG 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 SMN are associated (or correlated) with BW LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW LPG has no effect on the direction of Sparebank i.e., Sparebank and BW LPG go up and down completely randomly.

Pair Corralation between Sparebank and BW LPG

Assuming the 90 days trading horizon Sparebank 1 SMN is expected to generate 0.37 times more return on investment than BW LPG. However, Sparebank 1 SMN is 2.69 times less risky than BW LPG. It trades about 0.18 of its potential returns per unit of risk. BW LPG is currently generating about -0.11 per unit of risk. If you would invest  15,272  in Sparebank 1 SMN on September 14, 2024 and sell it today you would earn a total of  1,458  from holding Sparebank 1 SMN or generate 9.55% return on investment over 90 days.

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

Sparebank 1 SMN  vs.  BW LPG

Sparebank 1 SMN

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BW LPG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW LPG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Sparebank and BW LPG

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

The idea behind Sparebank 1 SMN and BW LPG 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.