Correlation Between Skue Sparebank and Aasen Sparebank

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

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

Diversification Opportunities for Skue Sparebank and Aasen Sparebank

0.69

Correlation Coefficient

Skue Sparebank  Aasen Sparebank

Poor diversification

The 3 months correlation between Skue and Aasen is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Skue Sparebank and Aasen Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aasen Sparebank and Skue 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 Skue Sparebank are associated (or correlated) with Aasen Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aasen Sparebank has no effect on the direction of Skue Sparebank i.e., Skue Sparebank and Aasen Sparebank go up and down completely randomly.

Pair Corralation between Skue Sparebank and Aasen Sparebank

Assuming the 90 days trading horizon Skue Sparebank is expected to generate 0.99 times more return on investment than Aasen Sparebank. However, Skue Sparebank is 1.01 times less risky than Aasen Sparebank. It trades about 0.11 of its potential returns per unit of risk. Aasen Sparebank is currently generating about 0.1 per unit of risk. If you would invest  24,980  in Skue Sparebank on September 13, 2024 and sell it today you would earn a total of  2,015  from holding Skue Sparebank or generate 8.07% return on investment over 90 days.

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

Skue Sparebank  vs.  Aasen Sparebank

Skue Sparebank

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Skue Sparebank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Skue Sparebank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aasen Sparebank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aasen Sparebank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Aasen Sparebank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Skue Sparebank and Aasen Sparebank

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

The idea behind Skue Sparebank and Aasen 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.