Correlation Between Nordea Bank and Svenska Handelsbanken

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

By analyzing existing cross correlation between Nordea Bank Abp and Svenska Handelsbanken AB, you can compare the effects of market volatilities on Nordea Bank and Svenska Handelsbanken 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 Nordea Bank with a short position of Svenska Handelsbanken. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nordea Bank and Svenska Handelsbanken.

Diversification Opportunities for Nordea Bank and Svenska Handelsbanken

0.78

Correlation Coefficient

Nordea Bank  Svenska Handelsbanken

Poor diversification

The 3 months correlation between Nordea and Svenska is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Nordea Bank Abp and Svenska Handelsbanken AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Svenska Handelsbanken and Nordea 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 Nordea Bank Abp are associated (or correlated) with Svenska Handelsbanken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Svenska Handelsbanken has no effect on the direction of Nordea Bank i.e., Nordea Bank and Svenska Handelsbanken go up and down completely randomly.

Pair Corralation between Nordea Bank and Svenska Handelsbanken

Assuming the 90 days trading horizon Nordea Bank is expected to generate 5.24 times less return on investment than Svenska Handelsbanken. But when comparing it to its historical volatility, Nordea Bank Abp is 1.03 times less risky than Svenska Handelsbanken. It trades about 0.02 of its potential returns per unit of risk. Svenska Handelsbanken AB is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  13,320  in Svenska Handelsbanken AB on August 31, 2024 and sell it today you would earn a total of  1,280  from holding Svenska Handelsbanken AB or generate 9.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Nordea Bank Abp  vs.  Svenska Handelsbanken AB

Nordea Bank Abp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nordea Bank Abp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nordea Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Svenska Handelsbanken

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Svenska Handelsbanken AB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Svenska Handelsbanken may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Nordea Bank and Svenska Handelsbanken

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

The idea behind Nordea Bank Abp and Svenska Handelsbanken AB 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.