Correlation Between Sparebank and Sparebank

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

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

Diversification Opportunities for Sparebank and Sparebank

0.94

Correlation Coefficient

Sparebank  Sparebank

Almost no diversification

The 3 months correlation between Sparebank and Sparebank is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SR 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 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 SR 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 Sparebank i.e., Sparebank and Sparebank go up and down completely randomly.

Pair Corralation between Sparebank and Sparebank

Assuming the 90 days trading horizon Sparebank 1 SR is expected to generate 1.4 times more return on investment than Sparebank. However, Sparebank is 1.4 times more volatile than Sparebank 1 SMN. It trades about 0.12 of its potential returns per unit of risk. Sparebank 1 SMN is currently generating about 0.11 per unit of risk. If you would invest  13,280  in Sparebank 1 SR on September 3, 2024 and sell it today you would earn a total of  1,160  from holding Sparebank 1 SR or generate 8.73% return on investment over 90 days.

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

Sparebank 1 SR  vs.  Sparebank 1 SMN

Sparebank 1 SR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sparebank 1 SMN

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, 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 Sparebank and Sparebank

The main advantage of trading using opposite Sparebank and Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sparebank 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 Sparebank 1 SR 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.