Correlation Between Goodtech and Sparebank

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

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

Diversification Opportunities for Goodtech and Sparebank

0.19

Correlation Coefficient

Goodtech  Sparebank

Average diversification

The 3 months correlation between Goodtech and Sparebank is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Goodtech and Sparebank 1 SMN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 SMN and Goodtech 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 Goodtech 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 SMN has no effect on the direction of Goodtech i.e., Goodtech and Sparebank go up and down completely randomly.

Pair Corralation between Goodtech and Sparebank

Assuming the 90 days trading horizon Goodtech is expected to under-perform the Sparebank. In addition to that, Goodtech is 2.5 times more volatile than Sparebank 1 SMN. It trades about -0.19 of its total potential returns per unit of risk. Sparebank 1 SMN is currently generating about 0.38 per unit of volatility. If you would invest  16,946  in Sparebank 1 SMN on October 27, 2024 and sell it today you would earn a total of  936.00  from holding Sparebank 1 SMN or generate 5.52% return on investment over 90 days.

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

Goodtech  vs.  Sparebank 1 SMN

Goodtech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goodtech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Goodtech is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sparebank 1 SMN

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 11 (%) 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 February 2025.

Pair Trading with Goodtech and Sparebank

The main advantage of trading using opposite Goodtech and Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodtech 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 Goodtech and Sparebank 1 SMN 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.