Correlation Between DnB ASA and Sparebanken Mre

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

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

Diversification Opportunities for DnB ASA and Sparebanken Mre

0.62

Correlation Coefficient

DnB ASA  Sparebanken Mre

Poor diversification

The 3 months correlation between DnB and Sparebanken is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding DnB ASA and Sparebanken Mre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebanken Mre 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 Sparebanken Mre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebanken Mre has no effect on the direction of DnB ASA i.e., DnB ASA and Sparebanken Mre go up and down completely randomly.

Pair Corralation between DnB ASA and Sparebanken Mre

Assuming the 90 days trading horizon DnB ASA is expected to generate 0.72 times more return on investment than Sparebanken Mre. However, DnB ASA is 1.39 times less risky than Sparebanken Mre. It trades about 0.34 of its potential returns per unit of risk. Sparebanken Mre is currently generating about 0.09 per unit of risk. If you would invest  22,690  in DnB ASA on December 30, 2024 and sell it today you would earn a total of  4,980  from holding DnB ASA or generate 21.95% 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.  Sparebanken Mre

DnB ASA

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in DnB ASA are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, DnB ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Sparebanken Mre

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebanken Mre are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Sparebanken Mre may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with DnB ASA and Sparebanken Mre

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

The idea behind DnB ASA and Sparebanken Mre 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.