Correlation Between SD Standard and Romsdal Sparebank

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

By analyzing existing cross correlation between SD Standard Drilling and Romsdal Sparebank, you can compare the effects of market volatilities on SD Standard and Romsdal 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 SD Standard with a short position of Romsdal Sparebank. Check out your portfolio center. Please also check ongoing floating volatility patterns of SD Standard and Romsdal Sparebank.

Diversification Opportunities for SD Standard and Romsdal Sparebank

0.84

Correlation Coefficient

SD Standard  Romsdal Sparebank

Very poor diversification

The 3 months correlation between SDSD and Romsdal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding SD Standard Drilling and Romsdal Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Romsdal Sparebank and SD Standard 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 SD Standard Drilling are associated (or correlated) with Romsdal Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Romsdal Sparebank has no effect on the direction of SD Standard i.e., SD Standard and Romsdal Sparebank go up and down completely randomly.

Pair Corralation between SD Standard and Romsdal Sparebank

Assuming the 90 days trading horizon SD Standard is expected to generate 1.59 times less return on investment than Romsdal Sparebank. In addition to that, SD Standard is 1.13 times more volatile than Romsdal Sparebank. It trades about 0.1 of its total potential returns per unit of risk. Romsdal Sparebank is currently generating about 0.18 per unit of volatility. If you would invest  11,378  in Romsdal Sparebank on September 4, 2024 and sell it today you would earn a total of  1,060  from holding Romsdal Sparebank or generate 9.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

SD Standard Drilling  vs.  Romsdal Sparebank

SD Standard Drilling

Risk-Adjusted Performance

7 of 100

OK

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

Romsdal Sparebank

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with SD Standard and Romsdal Sparebank

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

The idea behind SD Standard Drilling and Romsdal Sparebank 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 Anywhere module to track or share privately all of your investments from the convenience of any device.