Correlation Between Romerike Sparebank and Sogn Sparebank

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

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

Diversification Opportunities for Romerike Sparebank and Sogn Sparebank

0.47

Correlation Coefficient

Romerike Sparebank  Sogn Sparebank

Very weak diversification

The 3 months correlation between Romerike and Sogn is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Romerike Sparebank and Sogn Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sogn Sparebank and Romerike 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 Romerike Sparebank are associated (or correlated) with Sogn Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sogn Sparebank has no effect on the direction of Romerike Sparebank i.e., Romerike Sparebank and Sogn Sparebank go up and down completely randomly.

Pair Corralation between Romerike Sparebank and Sogn Sparebank

Assuming the 90 days trading horizon Romerike Sparebank is expected to generate 4.01 times less return on investment than Sogn Sparebank. But when comparing it to its historical volatility, Romerike Sparebank is 3.08 times less risky than Sogn Sparebank. It trades about 0.12 of its potential returns per unit of risk. Sogn Sparebank is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  20,200  in Sogn Sparebank on September 4, 2024 and sell it today you would earn a total of  5,300  from holding Sogn Sparebank or generate 26.24% return on investment over 90 days.

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

Romerike Sparebank  vs.  Sogn Sparebank

Romerike Sparebank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Romerike Sparebank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Romerike Sparebank is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Sogn Sparebank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sogn Sparebank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Sogn Sparebank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Romerike Sparebank and Sogn Sparebank

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

The idea behind Romerike Sparebank and Sogn 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.