Correlation Between Sparebank and Vow ASA

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

Diversification Opportunities for Sparebank and Vow ASA

-0.52

Correlation Coefficient

Sparebank  Vow ASA

Excellent diversification

The 3 months correlation between Sparebank and Vow is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SMN and Vow ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vow 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 Vow ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vow ASA has no effect on the direction of Sparebank i.e., Sparebank and Vow ASA go up and down completely randomly.

Pair Corralation between Sparebank and Vow ASA

Assuming the 90 days trading horizon Sparebank 1 SMN is expected to generate 0.22 times more return on investment than Vow ASA. However, Sparebank 1 SMN is 4.58 times less risky than Vow ASA. It trades about 0.09 of its potential returns per unit of risk. Vow ASA is currently generating about -0.06 per unit of risk. If you would invest  11,082  in Sparebank 1 SMN on December 1, 2024 and sell it today you would earn a total of  7,268  from holding Sparebank 1 SMN or generate 65.58% return on investment over 90 days.

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

Sparebank 1 SMN  vs.  Vow ASA

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.

Vow ASA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vow ASA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Vow ASA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Sparebank and Vow ASA

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

The idea behind Sparebank 1 SMN and Vow 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.

Check out your portfolio center.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.