Correlation Between Sparebank and Skue Sparebank

Can any of the company-specific risk be diversified away by investing in both 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 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 Sparebank 1 SMN and Skue Sparebank, you can compare the effects of market volatilities on 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 Sparebank with a short position of Skue Sparebank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Skue Sparebank.

Diversification Opportunities for Sparebank and Skue Sparebank

0.83

Correlation Coefficient

Sparebank  Skue Sparebank

Very poor diversification

The 3 months correlation between Sparebank and Skue is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SMN and Skue Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skue Sparebank 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 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 Sparebank i.e., Sparebank and Skue Sparebank go up and down completely randomly.

Pair Corralation between Sparebank and Skue Sparebank

Assuming the 90 days trading horizon Sparebank is expected to generate 2.18 times less return on investment than Skue Sparebank. But when comparing it to its historical volatility, Sparebank 1 SMN is 1.39 times less risky than Skue Sparebank. It trades about 0.24 of its potential returns per unit of risk. Skue Sparebank is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  26,095  in Skue Sparebank on December 2, 2024 and sell it today you would earn a total of  7,850  from holding Skue Sparebank or generate 30.08% return on investment over 90 days.

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

Sparebank 1 SMN  vs.  Skue Sparebank

Sparebank 1 SMN

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Sparebank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Skue Sparebank

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Skue Sparebank are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Skue Sparebank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sparebank and Skue Sparebank

The main advantage of trading using opposite Sparebank and Skue Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 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 Sparebank 1 SMN 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.