Correlation Between Sparebank and DnB ASA

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

By analyzing existing cross correlation between Sparebank 1 Ostfold and DnB ASA, you can compare the effects of market volatilities on Sparebank and DnB ASA 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 Sparebank with a short position of DnB ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and DnB ASA.

Diversification Opportunities for Sparebank and DnB ASA

0.84

Correlation Coefficient

Sparebank  DnB ASA

Very poor diversification

The 3 months correlation between Sparebank and DnB is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 Ostfold and DnB ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DnB ASA and 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 Sparebank 1 Ostfold are associated (or correlated) with DnB ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DnB ASA has no effect on the direction of Sparebank i.e., Sparebank and DnB ASA go up and down completely randomly.

Pair Corralation between Sparebank and DnB ASA

Assuming the 90 days trading horizon Sparebank 1 Ostfold is expected to generate 1.32 times more return on investment than DnB ASA. However, Sparebank is 1.32 times more volatile than DnB ASA. It trades about 0.06 of its potential returns per unit of risk. DnB ASA is currently generating about 0.07 per unit of risk. If you would invest  26,000  in Sparebank 1 Ostfold on September 3, 2024 and sell it today you would earn a total of  11,500  from holding Sparebank 1 Ostfold or generate 44.23% return on investment over 90 days.

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

Sparebank 1 Ostfold  vs.  DnB ASA

Sparebank 1 Ostfold

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 Ostfold are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Sparebank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

DnB ASA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DnB ASA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, DnB ASA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Sparebank and DnB ASA

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

The idea behind Sparebank 1 Ostfold and DnB 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.