Correlation Between Metro Bank and Sparebanken Vest

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

By analyzing existing cross correlation between Metro Bank PLC and Sparebanken Vest, you can compare the effects of market volatilities on Metro Bank and Sparebanken Vest 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 Metro Bank with a short position of Sparebanken Vest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Bank and Sparebanken Vest.

Diversification Opportunities for Metro Bank and Sparebanken Vest

0.56

Correlation Coefficient

Metro Bank  Sparebanken Vest

Very weak diversification

The 3 months correlation between Metro and Sparebanken is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Metro Bank PLC and Sparebanken Vest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebanken Vest and Metro 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 Metro Bank PLC are associated (or correlated) with Sparebanken Vest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebanken Vest has no effect on the direction of Metro Bank i.e., Metro Bank and Sparebanken Vest go up and down completely randomly.

Pair Corralation between Metro Bank and Sparebanken Vest

Assuming the 90 days trading horizon Metro Bank PLC is expected to generate 2.31 times more return on investment than Sparebanken Vest. However, Metro Bank is 2.31 times more volatile than Sparebanken Vest. It trades about 0.17 of its potential returns per unit of risk. Sparebanken Vest is currently generating about 0.15 per unit of risk. If you would invest  7,010  in Metro Bank PLC on October 26, 2024 and sell it today you would earn a total of  2,630  from holding Metro Bank PLC or generate 37.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.44%
Values	Daily Returns

Metro Bank PLC  vs.  Sparebanken Vest

Metro Bank PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Bank PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Metro Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sparebanken Vest

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebanken Vest are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Sparebanken Vest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro Bank and Sparebanken Vest

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

The idea behind Metro Bank PLC and Sparebanken Vest 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.