Correlation Between Bien Sparebank and Pareto Bank

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

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

Diversification Opportunities for Bien Sparebank and Pareto Bank

0.79

Correlation Coefficient

Bien Sparebank  Pareto Bank

Poor diversification

The 3 months correlation between Bien and Pareto is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bien Sparebank ASA and Pareto Bank ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pareto Bank ASA and Bien 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 Bien Sparebank ASA are associated (or correlated) with Pareto Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pareto Bank ASA has no effect on the direction of Bien Sparebank i.e., Bien Sparebank and Pareto Bank go up and down completely randomly.

Pair Corralation between Bien Sparebank and Pareto Bank

Assuming the 90 days trading horizon Bien Sparebank ASA is expected to generate 2.49 times more return on investment than Pareto Bank. However, Bien Sparebank is 2.49 times more volatile than Pareto Bank ASA. It trades about 0.18 of its potential returns per unit of risk. Pareto Bank ASA is currently generating about 0.21 per unit of risk. If you would invest  11,800  in Bien Sparebank ASA on December 30, 2024 and sell it today you would earn a total of  4,700  from holding Bien Sparebank ASA or generate 39.83% return on investment over 90 days.

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

Bien Sparebank ASA  vs.  Pareto Bank ASA

Bien Sparebank ASA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bien Sparebank ASA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Bien Sparebank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pareto Bank ASA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pareto Bank ASA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Pareto Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bien Sparebank and Pareto Bank

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

The idea behind Bien Sparebank ASA and Pareto Bank ASA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.