Correlation Between Skue Sparebank and Melhus Sparebank

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

Diversification Opportunities for Skue Sparebank and Melhus Sparebank

0.62

Correlation Coefficient

Skue Sparebank  Melhus Sparebank

Poor diversification

The 3 months correlation between Skue and Melhus is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Skue Sparebank and Melhus Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melhus 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 Melhus Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melhus Sparebank has no effect on the direction of Skue Sparebank i.e., Skue Sparebank and Melhus Sparebank go up and down completely randomly.

Pair Corralation between Skue Sparebank and Melhus Sparebank

Assuming the 90 days trading horizon Skue Sparebank is expected to generate 1.66 times more return on investment than Melhus Sparebank. However, Skue Sparebank is 1.66 times more volatile than Melhus Sparebank. It trades about 0.13 of its potential returns per unit of risk. Melhus Sparebank is currently generating about -0.11 per unit of risk. If you would invest  25,050  in Skue Sparebank on September 3, 2024 and sell it today you would earn a total of  850.00  from holding Skue Sparebank or generate 3.39% 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.  Melhus Sparebank

Skue Sparebank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Skue Sparebank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Skue Sparebank is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Melhus Sparebank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Melhus Sparebank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Melhus Sparebank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Skue Sparebank and Melhus Sparebank

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

The idea behind Skue Sparebank and Melhus 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.