Correlation Between Skandinaviska Enskilda and Nordea Bank

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

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

Diversification Opportunities for Skandinaviska Enskilda and Nordea Bank

0.96

Correlation Coefficient

Skandinaviska Enskilda  Nordea Bank

Almost no diversification

The 3 months correlation between Skandinaviska and Nordea is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Skandinaviska Enskilda Banken and Nordea Bank Abp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordea Bank Abp and Skandinaviska Enskilda 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 Skandinaviska Enskilda Banken are associated (or correlated) with Nordea Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordea Bank Abp has no effect on the direction of Skandinaviska Enskilda i.e., Skandinaviska Enskilda and Nordea Bank go up and down completely randomly.

Pair Corralation between Skandinaviska Enskilda and Nordea Bank

Assuming the 90 days trading horizon Skandinaviska Enskilda Banken is expected to generate 1.01 times more return on investment than Nordea Bank. However, Skandinaviska Enskilda is 1.01 times more volatile than Nordea Bank Abp. It trades about 0.21 of its potential returns per unit of risk. Nordea Bank Abp is currently generating about 0.18 per unit of risk. If you would invest  15,440  in Skandinaviska Enskilda Banken on December 2, 2024 and sell it today you would earn a total of  2,420  from holding Skandinaviska Enskilda Banken or generate 15.67% return on investment over 90 days.

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

Skandinaviska Enskilda Banken  vs.  Nordea Bank Abp

Skandinaviska Enskilda

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Skandinaviska Enskilda Banken are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Skandinaviska Enskilda unveiled solid returns over the last few months and may actually be approaching a breakup point.

Nordea Bank Abp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nordea Bank Abp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Nordea Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Skandinaviska Enskilda and Nordea Bank

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

The idea behind Skandinaviska Enskilda Banken and Nordea Bank Abp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.