Correlation Between Sparebank and Norske Skog

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

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

Diversification Opportunities for Sparebank and Norske Skog

-0.29

Correlation Coefficient

Sparebank  Norske Skog

Very good diversification

The 3 months correlation between Sparebank and Norske is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SMN and Norske Skog Asa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norske Skog Asa and 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 Sparebank 1 SMN are associated (or correlated) with Norske Skog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norske Skog Asa has no effect on the direction of Sparebank i.e., Sparebank and Norske Skog go up and down completely randomly.

Pair Corralation between Sparebank and Norske Skog

Assuming the 90 days trading horizon Sparebank is expected to generate 2.15 times less return on investment than Norske Skog. But when comparing it to its historical volatility, Sparebank 1 SMN is 5.91 times less risky than Norske Skog. It trades about 0.19 of its potential returns per unit of risk. Norske Skog Asa is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,120  in Norske Skog Asa on November 28, 2024 and sell it today you would earn a total of  318.00  from holding Norske Skog Asa or generate 15.0% return on investment over 90 days.

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

Sparebank 1 SMN  vs.  Norske Skog Asa

Sparebank 1 SMN

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 15 (%) 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 March 2025.

Norske Skog Asa

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Norske Skog Asa are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Norske Skog displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sparebank and Norske Skog

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

The idea behind Sparebank 1 SMN and Norske Skog 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..