Correlation Between Svenska Handelsbanken and Avanza Bank

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

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

Diversification Opportunities for Svenska Handelsbanken and Avanza Bank

0.6

Correlation Coefficient

Svenska Handelsbanken  Avanza Bank

Poor diversification

The 3 months correlation between Svenska and Avanza is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Svenska Handelsbanken AB and Avanza Bank Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanza Bank Holding and Svenska Handelsbanken 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 Svenska Handelsbanken AB are associated (or correlated) with Avanza Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanza Bank Holding has no effect on the direction of Svenska Handelsbanken i.e., Svenska Handelsbanken and Avanza Bank go up and down completely randomly.

Pair Corralation between Svenska Handelsbanken and Avanza Bank

Assuming the 90 days trading horizon Svenska Handelsbanken is expected to generate 2.61 times less return on investment than Avanza Bank. But when comparing it to its historical volatility, Svenska Handelsbanken AB is 1.77 times less risky than Avanza Bank. It trades about 0.06 of its potential returns per unit of risk. Avanza Bank Holding is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  27,440  in Avanza Bank Holding on December 31, 2024 and sell it today you would earn a total of  3,510  from holding Avanza Bank Holding or generate 12.79% return on investment over 90 days.

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

Svenska Handelsbanken AB  vs.  Avanza Bank Holding

Svenska Handelsbanken

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Svenska Handelsbanken AB are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Svenska Handelsbanken is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Avanza Bank Holding

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avanza Bank Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Avanza Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Svenska Handelsbanken and Avanza Bank

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

The idea behind Svenska Handelsbanken AB and Avanza Bank Holding 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.