Correlation Between Sparebank and Instabank ASA

Can any of the company-specific risk be diversified away by investing in both Sparebank and Instabank ASA 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 Instabank ASA 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 Instabank ASA, you can compare the effects of market volatilities on Sparebank and Instabank ASA 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 Instabank ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Instabank ASA.

Diversification Opportunities for Sparebank and Instabank ASA

-0.11

Correlation Coefficient

Sparebank  Instabank ASA

Good diversification

The 3 months correlation between Sparebank and Instabank is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SMN and Instabank ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Instabank ASA 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 Instabank ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Instabank ASA has no effect on the direction of Sparebank i.e., Sparebank and Instabank ASA go up and down completely randomly.

Pair Corralation between Sparebank and Instabank ASA

Assuming the 90 days trading horizon Sparebank 1 SMN is expected to generate 0.61 times more return on investment than Instabank ASA. However, Sparebank 1 SMN is 1.65 times less risky than Instabank ASA. It trades about 0.1 of its potential returns per unit of risk. Instabank ASA is currently generating about 0.01 per unit of risk. If you would invest  15,468  in Sparebank 1 SMN on September 4, 2024 and sell it today you would earn a total of  796.00  from holding Sparebank 1 SMN or generate 5.15% return on investment over 90 days.

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

Sparebank 1 SMN  vs.  Instabank ASA

Sparebank 1 SMN

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Sparebank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Instabank ASA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sparebank and Instabank ASA

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

The idea behind Sparebank 1 SMN and Instabank 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.