Correlation Between North Energy and Romsdal Sparebank

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

By analyzing existing cross correlation between North Energy ASA and Romsdal Sparebank, you can compare the effects of market volatilities on North Energy and Romsdal 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 North Energy with a short position of Romsdal Sparebank. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Energy and Romsdal Sparebank.

Diversification Opportunities for North Energy and Romsdal Sparebank

0.1

Correlation Coefficient

North Energy  Romsdal Sparebank

Average diversification

The 3 months correlation between North and Romsdal is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding North Energy ASA and Romsdal Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Romsdal Sparebank and North Energy 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 North Energy ASA are associated (or correlated) with Romsdal Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Romsdal Sparebank has no effect on the direction of North Energy i.e., North Energy and Romsdal Sparebank go up and down completely randomly.

Pair Corralation between North Energy and Romsdal Sparebank

Assuming the 90 days trading horizon North Energy ASA is expected to under-perform the Romsdal Sparebank. In addition to that, North Energy is 2.04 times more volatile than Romsdal Sparebank. It trades about -0.02 of its total potential returns per unit of risk. Romsdal Sparebank is currently generating about 0.03 per unit of volatility. If you would invest  12,438  in Romsdal Sparebank on December 1, 2024 and sell it today you would earn a total of  212.00  from holding Romsdal Sparebank or generate 1.7% return on investment over 90 days.

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

North Energy ASA  vs.  Romsdal Sparebank

North Energy ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days North Energy ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, North Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Romsdal Sparebank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Romsdal Sparebank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Romsdal Sparebank is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with North Energy and Romsdal Sparebank

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

The idea behind North Energy ASA and Romsdal 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.