Correlation Between Spar Nord and First Farms

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

By analyzing existing cross correlation between Spar Nord Bank and First Farms AS, you can compare the effects of market volatilities on Spar Nord and First Farms 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 Spar Nord with a short position of First Farms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spar Nord and First Farms.

Diversification Opportunities for Spar Nord and First Farms

0.27

Correlation Coefficient

Spar Nord  First Farms

Modest diversification

The 3 months correlation between Spar and First is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Spar Nord Bank and First Farms AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Farms AS and Spar Nord 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 Spar Nord Bank are associated (or correlated) with First Farms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Farms AS has no effect on the direction of Spar Nord i.e., Spar Nord and First Farms go up and down completely randomly.

Pair Corralation between Spar Nord and First Farms

Assuming the 90 days trading horizon Spar Nord Bank is expected to generate 2.56 times more return on investment than First Farms. However, Spar Nord is 2.56 times more volatile than First Farms AS. It trades about 0.14 of its potential returns per unit of risk. First Farms AS is currently generating about 0.12 per unit of risk. If you would invest  13,720  in Spar Nord Bank on December 4, 2024 and sell it today you would earn a total of  7,130  from holding Spar Nord Bank or generate 51.97% return on investment over 90 days.

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

Spar Nord Bank  vs.  First Farms AS

Spar Nord Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Spar Nord Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Spar Nord displayed solid returns over the last few months and may actually be approaching a breakup point.

First Farms AS

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Farms AS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, First Farms sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Spar Nord and First Farms

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

The idea behind Spar Nord Bank and First Farms AS 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 Managers module to screen money managers from public funds and ETFs managed around the world.