Correlation Between Capital Metals and Sparebank

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

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

Diversification Opportunities for Capital Metals and Sparebank

0.28

Correlation Coefficient

Capital Metals  Sparebank

Modest diversification

The 3 months correlation between Capital and Sparebank is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Capital Metals PLC and Sparebank 1 SR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 SR and Capital Metals 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 Capital Metals PLC 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 SR has no effect on the direction of Capital Metals i.e., Capital Metals and Sparebank go up and down completely randomly.

Pair Corralation between Capital Metals and Sparebank

Assuming the 90 days trading horizon Capital Metals PLC is expected to generate 7.49 times more return on investment than Sparebank. However, Capital Metals is 7.49 times more volatile than Sparebank 1 SR. It trades about 0.03 of its potential returns per unit of risk. Sparebank 1 SR is currently generating about 0.06 per unit of risk. If you would invest  265.00  in Capital Metals PLC on October 10, 2024 and sell it today you would lose (95.00) from holding Capital Metals PLC or give up 35.85% of portfolio value over 90 days.

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

Capital Metals PLC  vs.  Sparebank 1 SR

Capital Metals PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Metals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Capital Metals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Sparebank 1 SR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Capital Metals and Sparebank

The main advantage of trading using opposite Capital Metals and Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Metals 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 Capital Metals PLC and Sparebank 1 SR 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.