Correlation Between DnB ASA and Kongsberg Gruppen

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

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

Diversification Opportunities for DnB ASA and Kongsberg Gruppen

0.76

Correlation Coefficient

DnB ASA  Kongsberg Gruppen

Poor diversification

The 3 months correlation between DnB and Kongsberg is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding DnB ASA and Kongsberg Gruppen ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kongsberg Gruppen ASA and DnB ASA 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 DnB ASA are associated (or correlated) with Kongsberg Gruppen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kongsberg Gruppen ASA has no effect on the direction of DnB ASA i.e., DnB ASA and Kongsberg Gruppen go up and down completely randomly.

Pair Corralation between DnB ASA and Kongsberg Gruppen

Assuming the 90 days trading horizon DnB ASA is expected to generate 5.01 times less return on investment than Kongsberg Gruppen. But when comparing it to its historical volatility, DnB ASA is 1.92 times less risky than Kongsberg Gruppen. It trades about 0.06 of its potential returns per unit of risk. Kongsberg Gruppen ASA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  107,908  in Kongsberg Gruppen ASA on August 31, 2024 and sell it today you would earn a total of  23,092  from holding Kongsberg Gruppen ASA or generate 21.4% return on investment over 90 days.

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

DnB ASA  vs.  Kongsberg Gruppen ASA

DnB ASA

Risk-Adjusted Performance

4 of 100

Insignificant

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

Kongsberg Gruppen ASA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kongsberg Gruppen ASA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, Kongsberg Gruppen disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DnB ASA and Kongsberg Gruppen

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

The idea behind DnB ASA and Kongsberg Gruppen 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.