Correlation Between Kraft Bank and North Energy

Can any of the company-specific risk be diversified away by investing in both Kraft Bank and North Energy 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 North Energy 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 North Energy ASA, you can compare the effects of market volatilities on Kraft Bank and North Energy 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 North Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kraft Bank and North Energy.

Diversification Opportunities for Kraft Bank and North Energy

0.28

Correlation Coefficient

Kraft Bank  North Energy

Modest diversification

The 3 months correlation between Kraft and North is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Kraft Bank Asa and North Energy ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Energy 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 North Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Energy ASA has no effect on the direction of Kraft Bank i.e., Kraft Bank and North Energy go up and down completely randomly.

Pair Corralation between Kraft Bank and North Energy

Assuming the 90 days trading horizon Kraft Bank is expected to generate 5.5 times less return on investment than North Energy. But when comparing it to its historical volatility, Kraft Bank Asa is 1.53 times less risky than North Energy. It trades about 0.01 of its potential returns per unit of risk. North Energy ASA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  252.00  in North Energy ASA on December 30, 2024 and sell it today you would earn a total of  8.00  from holding North Energy ASA or generate 3.17% 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.  North Energy 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.

North Energy ASA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in North Energy ASA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, North Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Kraft Bank and North Energy

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

The idea behind Kraft Bank Asa and North Energy 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.