Correlation Between Grong Sparebank and Skue Sparebank

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

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

Diversification Opportunities for Grong Sparebank and Skue Sparebank

0.4

Correlation Coefficient

Grong Sparebank  Skue Sparebank

Very weak diversification

The 3 months correlation between Grong and Skue is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Grong Sparebank and Skue Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skue Sparebank and Grong Sparebank 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 Grong Sparebank are associated (or correlated) with Skue Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skue Sparebank has no effect on the direction of Grong Sparebank i.e., Grong Sparebank and Skue Sparebank go up and down completely randomly.

Pair Corralation between Grong Sparebank and Skue Sparebank

Assuming the 90 days trading horizon Grong Sparebank is expected to generate 2.88 times less return on investment than Skue Sparebank. But when comparing it to its historical volatility, Grong Sparebank is 1.15 times less risky than Skue Sparebank. It trades about 0.02 of its potential returns per unit of risk. Skue Sparebank is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  24,795  in Skue Sparebank on September 3, 2024 and sell it today you would earn a total of  1,105  from holding Skue Sparebank or generate 4.46% return on investment over 90 days.

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

Grong Sparebank  vs.  Skue Sparebank

Grong Sparebank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Grong Sparebank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Grong Sparebank is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Skue Sparebank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Skue Sparebank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Skue Sparebank is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Grong Sparebank and Skue Sparebank

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

The idea behind Grong Sparebank and Skue 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.