Correlation Between DnB ASA and Sparebank

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

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

Diversification Opportunities for DnB ASA and Sparebank

0.78

Correlation Coefficient

DnB ASA  Sparebank

Poor diversification

The 3 months correlation between DnB and Sparebank is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding DnB ASA and Sparebank 1 Ostfold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 Ostfold 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 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 Ostfold has no effect on the direction of DnB ASA i.e., DnB ASA and Sparebank go up and down completely randomly.

Pair Corralation between DnB ASA and Sparebank

Assuming the 90 days trading horizon DnB ASA is expected to generate 1.08 times less return on investment than Sparebank. But when comparing it to its historical volatility, DnB ASA is 1.76 times less risky than Sparebank. It trades about 0.23 of its potential returns per unit of risk. Sparebank 1 Ostfold is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  37,500  in Sparebank 1 Ostfold on December 1, 2024 and sell it today you would earn a total of  5,000  from holding Sparebank 1 Ostfold or generate 13.33% 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.  Sparebank 1 Ostfold

DnB ASA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DnB ASA are ranked lower than 18 (%) 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.

Sparebank 1 Ostfold

Risk-Adjusted Performance

Good

Over the last 90 days Sparebank 1 Ostfold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite weak essential indicators, Sparebank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DnB ASA and Sparebank

The main advantage of trading using opposite DnB ASA and Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DnB ASA 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 DnB ASA and Sparebank 1 Ostfold 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.