Correlation Between Sparebank and BW Offshore

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Can any of the company-specific risk be diversified away by investing in both Sparebank and BW Offshore 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 BW Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sparebank 1 SMN and BW Offshore, you can compare the effects of market volatilities on Sparebank and BW Offshore 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 BW Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and BW Offshore.

Diversification Opportunities for Sparebank and BW Offshore

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Sparebank and BWO is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SMN and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore 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 SMN are associated (or correlated) with BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore has no effect on the direction of Sparebank i.e., Sparebank and BW Offshore go up and down completely randomly.

Pair Corralation between Sparebank and BW Offshore

Assuming the 90 days trading horizon Sparebank 1 SMN is expected to generate 0.33 times more return on investment than BW Offshore. However, Sparebank 1 SMN is 3.01 times less risky than BW Offshore. It trades about 0.11 of its potential returns per unit of risk. BW Offshore is currently generating about 0.01 per unit of risk. If you would invest  15,700  in Sparebank 1 SMN on August 28, 2024 and sell it today you would earn a total of  936.00  from holding Sparebank 1 SMN or generate 5.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Sparebank 1 SMN  vs.  BW Offshore

 Performance 
       Timeline  
Sparebank 1 SMN 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 8 (%) 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.
BW Offshore 

Risk-Adjusted Performance

1 of 100

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

Sparebank and BW Offshore Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sparebank and BW Offshore

The main advantage of trading using opposite Sparebank and BW Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sparebank position performs unexpectedly, BW Offshore 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 BW Offshore will offset losses from the drop in BW Offshore's long position.
The idea behind Sparebank 1 SMN and BW Offshore 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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