Correlation Between Sparebank and Polaris Media

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

By analyzing existing cross correlation between Sparebank 1 SR and Polaris Media, you can compare the effects of market volatilities on Sparebank and Polaris Media 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 Polaris Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Polaris Media.

Diversification Opportunities for Sparebank and Polaris Media

0.74

Correlation Coefficient

Sparebank  Polaris Media

Poor diversification

The 3 months correlation between Sparebank and Polaris is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SR and Polaris Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polaris Media 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 SR are associated (or correlated) with Polaris Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polaris Media has no effect on the direction of Sparebank i.e., Sparebank and Polaris Media go up and down completely randomly.

Pair Corralation between Sparebank and Polaris Media

Assuming the 90 days trading horizon Sparebank is expected to generate 2.01 times less return on investment than Polaris Media. But when comparing it to its historical volatility, Sparebank 1 SR is 2.31 times less risky than Polaris Media. It trades about 0.12 of its potential returns per unit of risk. Polaris Media is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,250  in Polaris Media on September 5, 2024 and sell it today you would earn a total of  1,250  from holding Polaris Media or generate 17.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.92%
Values	Daily Returns

Sparebank 1 SR  vs.  Polaris Media

Sparebank 1 SR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Polaris Media

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Polaris Media are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Polaris Media disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sparebank and Polaris Media

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

The idea behind Sparebank 1 SR and Polaris Media 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.