Correlation Between River Tech and Sparebank

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

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

Diversification Opportunities for River Tech and Sparebank

-0.88

Correlation Coefficient

River Tech  Sparebank

Pay attention - limited upside

The 3 months correlation between River and Sparebank is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding River Tech plc and Sparebank 1 SMN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 SMN and River Tech 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 River Tech plc are associated (or correlated) with Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebank 1 SMN has no effect on the direction of River Tech i.e., River Tech and Sparebank go up and down completely randomly.

Pair Corralation between River Tech and Sparebank

Assuming the 90 days trading horizon River Tech plc is expected to under-perform the Sparebank. In addition to that, River Tech is 7.12 times more volatile than Sparebank 1 SMN. It trades about -0.04 of its total potential returns per unit of risk. Sparebank 1 SMN is currently generating about 0.2 per unit of volatility. If you would invest  14,996  in Sparebank 1 SMN on September 12, 2024 and sell it today you would earn a total of  1,664  from holding Sparebank 1 SMN or generate 11.1% return on investment over 90 days.

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

River Tech plc  vs.  Sparebank 1 SMN

River Tech plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days River Tech plc 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.

Sparebank 1 SMN

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 15 (%) 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.

Pair Trading with River Tech and Sparebank

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

The idea behind River Tech plc and Sparebank 1 SMN 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.