Correlation Between Elkem ASA and Melhus Sparebank

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

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

Diversification Opportunities for Elkem ASA and Melhus Sparebank

0.89

Correlation Coefficient

Elkem ASA  Melhus Sparebank

Very poor diversification

The 3 months correlation between Elkem and Melhus is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Elkem ASA and Melhus Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melhus Sparebank and Elkem 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 Elkem ASA are associated (or correlated) with Melhus Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melhus Sparebank has no effect on the direction of Elkem ASA i.e., Elkem ASA and Melhus Sparebank go up and down completely randomly.

Pair Corralation between Elkem ASA and Melhus Sparebank

Assuming the 90 days trading horizon Elkem ASA is expected to generate 3.44 times more return on investment than Melhus Sparebank. However, Elkem ASA is 3.44 times more volatile than Melhus Sparebank. It trades about 0.12 of its potential returns per unit of risk. Melhus Sparebank is currently generating about 0.17 per unit of risk. If you would invest  1,837  in Elkem ASA on December 2, 2024 and sell it today you would earn a total of  439.00  from holding Elkem ASA or generate 23.9% return on investment over 90 days.

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

Elkem ASA  vs.  Melhus Sparebank

Elkem ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elkem ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elkem ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Melhus Sparebank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Melhus Sparebank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Melhus Sparebank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Elkem ASA and Melhus Sparebank

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

The idea behind Elkem ASA and Melhus Sparebank 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.