Correlation Between Pareto Bank and Lea Bank

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

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

Diversification Opportunities for Pareto Bank and Lea Bank

0.01

Correlation Coefficient

Pareto Bank  Lea Bank

Significant diversification

The 3 months correlation between Pareto and Lea is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Pareto Bank ASA and Lea Bank ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lea Bank ASA and Pareto 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 Pareto Bank ASA are associated (or correlated) with Lea Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lea Bank ASA has no effect on the direction of Pareto Bank i.e., Pareto Bank and Lea Bank go up and down completely randomly.

Pair Corralation between Pareto Bank and Lea Bank

Assuming the 90 days trading horizon Pareto Bank ASA is expected to generate 0.51 times more return on investment than Lea Bank. However, Pareto Bank ASA is 1.97 times less risky than Lea Bank. It trades about 0.08 of its potential returns per unit of risk. Lea Bank ASA is currently generating about 0.04 per unit of risk. If you would invest  4,056  in Pareto Bank ASA on September 3, 2024 and sell it today you would earn a total of  2,404  from holding Pareto Bank ASA or generate 59.27% return on investment over 90 days.

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

Pareto Bank ASA  vs.  Lea Bank ASA

Pareto Bank ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pareto Bank ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Pareto Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Lea Bank ASA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lea Bank ASA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Lea Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pareto Bank and Lea Bank

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

The idea behind Pareto Bank ASA and Lea Bank 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.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.