Correlation Between Sparebanken Ost and Odfjell Drilling

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

By analyzing existing cross correlation between Sparebanken Ost and Odfjell Drilling, you can compare the effects of market volatilities on Sparebanken Ost and Odfjell Drilling 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 Sparebanken Ost with a short position of Odfjell Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebanken Ost and Odfjell Drilling.

Diversification Opportunities for Sparebanken Ost and Odfjell Drilling

0.65

Correlation Coefficient

Sparebanken Ost  Odfjell Drilling

Poor diversification

The 3 months correlation between Sparebanken and Odfjell is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Sparebanken Ost and Odfjell Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odfjell Drilling and Sparebanken Ost 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 Sparebanken Ost are associated (or correlated) with Odfjell Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odfjell Drilling has no effect on the direction of Sparebanken Ost i.e., Sparebanken Ost and Odfjell Drilling go up and down completely randomly.

Pair Corralation between Sparebanken Ost and Odfjell Drilling

Assuming the 90 days trading horizon Sparebanken Ost is expected to generate 1.68 times less return on investment than Odfjell Drilling. But when comparing it to its historical volatility, Sparebanken Ost is 1.37 times less risky than Odfjell Drilling. It trades about 0.16 of its potential returns per unit of risk. Odfjell Drilling is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,900  in Odfjell Drilling on December 23, 2024 and sell it today you would earn a total of  1,130  from holding Odfjell Drilling or generate 23.06% return on investment over 90 days.

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

Sparebanken Ost  vs.  Odfjell Drilling

Sparebanken Ost

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebanken Ost are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Sparebanken Ost disclosed solid returns over the last few months and may actually be approaching a breakup point.

Odfjell Drilling

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Odfjell Drilling are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Odfjell Drilling disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sparebanken Ost and Odfjell Drilling

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

The idea behind Sparebanken Ost and Odfjell Drilling 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.