Correlation Between Kraft Bank and Bien Sparebank

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

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

Diversification Opportunities for Kraft Bank and Bien Sparebank

0.35

Correlation Coefficient

Kraft Bank  Bien Sparebank

Weak diversification

The 3 months correlation between Kraft and Bien is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Kraft Bank Asa and Bien Sparebank ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bien Sparebank ASA and Kraft Bank 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 Kraft Bank Asa are associated (or correlated) with Bien Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bien Sparebank ASA has no effect on the direction of Kraft Bank i.e., Kraft Bank and Bien Sparebank go up and down completely randomly.

Pair Corralation between Kraft Bank and Bien Sparebank

Assuming the 90 days trading horizon Kraft Bank is expected to generate 37.55 times less return on investment than Bien Sparebank. But when comparing it to its historical volatility, Kraft Bank Asa is 1.76 times less risky than Bien Sparebank. It trades about 0.01 of its potential returns per unit of risk. Bien Sparebank ASA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  11,800  in Bien Sparebank ASA on December 30, 2024 and sell it today you would earn a total of  4,700  from holding Bien Sparebank ASA or generate 39.83% return on investment over 90 days.

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

Kraft Bank Asa  vs.  Bien Sparebank ASA

Kraft Bank Asa

Risk-Adjusted Performance

Very Weak

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

Bien Sparebank ASA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bien Sparebank ASA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Bien Sparebank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kraft Bank and Bien Sparebank

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

The idea behind Kraft Bank Asa and Bien Sparebank ASA 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.