Correlation Between SpareBank and Sparebanken Ost

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

By analyzing existing cross correlation between SpareBank 1 stlandet and Sparebanken Ost, you can compare the effects of market volatilities on SpareBank and Sparebanken Ost 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 Sparebanken Ost. Check out your portfolio center. Please also check ongoing floating volatility patterns of SpareBank and Sparebanken Ost.

Diversification Opportunities for SpareBank and Sparebanken Ost

0.73

Correlation Coefficient

SpareBank  Sparebanken Ost

Poor diversification

The 3 months correlation between SpareBank and Sparebanken is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding SpareBank 1 stlandet and Sparebanken Ost in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebanken Ost 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 stlandet are associated (or correlated) with Sparebanken Ost. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebanken Ost has no effect on the direction of SpareBank i.e., SpareBank and Sparebanken Ost go up and down completely randomly.

Pair Corralation between SpareBank and Sparebanken Ost

Assuming the 90 days trading horizon SpareBank is expected to generate 2.47 times less return on investment than Sparebanken Ost. But when comparing it to its historical volatility, SpareBank 1 stlandet is 1.14 times less risky than Sparebanken Ost. It trades about 0.11 of its potential returns per unit of risk. Sparebanken Ost is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  5,858  in Sparebanken Ost on September 26, 2024 and sell it today you would earn a total of  1,332  from holding Sparebanken Ost or generate 22.74% return on investment over 90 days.

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

SpareBank 1 stlandet  vs.  Sparebanken Ost

SpareBank 1 stlandet

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SpareBank 1 stlandet are ranked lower than 8 (%) 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.

Sparebanken Ost

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebanken Ost are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Sparebanken Ost disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SpareBank and Sparebanken Ost

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

The idea behind SpareBank 1 stlandet and Sparebanken Ost 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.