Correlation Between Sparebank and Kraft Bank

Can any of the company-specific risk be diversified away by investing in both Sparebank and Kraft 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 Sparebank and Kraft Bank 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 Kraft Bank Asa, you can compare the effects of market volatilities on Sparebank and Kraft 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 Sparebank with a short position of Kraft Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Kraft Bank.

Diversification Opportunities for Sparebank and Kraft Bank

0.15

Correlation Coefficient

Sparebank  Kraft Bank

Average diversification

The 3 months correlation between Sparebank and Kraft is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 Ostfold and Kraft Bank Asa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kraft Bank 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 Kraft Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kraft Bank Asa has no effect on the direction of Sparebank i.e., Sparebank and Kraft Bank go up and down completely randomly.

Pair Corralation between Sparebank and Kraft Bank

Assuming the 90 days trading horizon Sparebank 1 Ostfold is expected to generate 1.07 times more return on investment than Kraft Bank. However, Sparebank is 1.07 times more volatile than Kraft Bank Asa. It trades about 0.15 of its potential returns per unit of risk. Kraft Bank Asa is currently generating about 0.01 per unit of risk. If you would invest  37,500  in Sparebank 1 Ostfold on November 29, 2024 and sell it today you would earn a total of  5,000  from holding Sparebank 1 Ostfold or generate 13.33% return on investment over 90 days.

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

Sparebank 1 Ostfold  vs.  Kraft Bank Asa

Sparebank 1 Ostfold

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 Ostfold are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Sparebank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Kraft Bank Asa

Risk-Adjusted Performance

Weak

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

Pair Trading with Sparebank and Kraft Bank

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

The idea behind Sparebank 1 Ostfold and Kraft 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.