Correlation Between Elkem ASA and Sparebank

Can any of the company-specific risk be diversified away by investing in both Elkem 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 Elkem ASA and 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 Sparebank 1 Ringerike, you can compare the effects of market volatilities on Elkem 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 Elkem ASA with a short position of Sparebank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elkem ASA and Sparebank.

Diversification Opportunities for Elkem ASA and Sparebank

-0.15

Correlation Coefficient

Elkem ASA  Sparebank

Good diversification

The 3 months correlation between Elkem and Sparebank is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Elkem ASA and Sparebank 1 Ringerike in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 Ringerike 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 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 Ringerike has no effect on the direction of Elkem ASA i.e., Elkem ASA and Sparebank go up and down completely randomly.

Pair Corralation between Elkem ASA and Sparebank

Assuming the 90 days trading horizon Elkem ASA is expected to under-perform the Sparebank. In addition to that, Elkem ASA is 2.5 times more volatile than Sparebank 1 Ringerike. It trades about -0.04 of its total potential returns per unit of risk. Sparebank 1 Ringerike is currently generating about 0.14 per unit of volatility. If you would invest  29,650  in Sparebank 1 Ringerike on September 5, 2024 and sell it today you would earn a total of  2,850  from holding Sparebank 1 Ringerike or generate 9.61% return on investment over 90 days.

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

Elkem ASA  vs.  Sparebank 1 Ringerike

Elkem ASA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Elkem ASA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Elkem ASA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sparebank 1 Ringerike

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 Ringerike are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Elkem ASA and Sparebank

The main advantage of trading using opposite Elkem ASA and Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elkem 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 Elkem ASA and Sparebank 1 Ringerike 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.