Correlation Between Sparebank and Norsk Hydro
Can any of the company-specific risk be diversified away by investing in both Sparebank and Norsk Hydro 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 Norsk Hydro 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 Norsk Hydro ASA, you can compare the effects of market volatilities on Sparebank and Norsk Hydro 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 Norsk Hydro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Norsk Hydro.
Diversification Opportunities for Sparebank and Norsk Hydro
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Sparebank and Norsk is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SMN and Norsk Hydro ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norsk Hydro 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 SMN are associated (or correlated) with Norsk Hydro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norsk Hydro ASA has no effect on the direction of Sparebank i.e., Sparebank and Norsk Hydro go up and down completely randomly.
Pair Corralation between Sparebank and Norsk Hydro
Assuming the 90 days trading horizon Sparebank 1 SMN is expected to generate 0.55 times more return on investment than Norsk Hydro. However, Sparebank 1 SMN is 1.81 times less risky than Norsk Hydro. It trades about 0.38 of its potential returns per unit of risk. Norsk Hydro ASA is currently generating about 0.18 per unit of risk. If you would invest 17,088 in Sparebank 1 SMN on November 2, 2024 and sell it today you would earn a total of 1,170 from holding Sparebank 1 SMN or generate 6.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Sparebank 1 SMN vs. Norsk Hydro ASA
Performance |
| Timeline |
| Sparebank 1 SMN |
| Norsk Hydro ASA |
Sparebank and Norsk Hydro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sparebank and Norsk Hydro
The main advantage of trading using opposite Sparebank and Norsk Hydro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sparebank position performs unexpectedly, Norsk Hydro 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 Norsk Hydro will offset losses from the drop in Norsk Hydro's long position.| Sparebank vs. Sparebank 1 Nord Norge | Sparebank vs. Sparebanken Vest | Sparebank vs. Storebrand ASA | Sparebank vs. DnB ASA |
| Norsk Hydro vs. Yara International ASA | Norsk Hydro vs. Equinor ASA | Norsk Hydro vs. Telenor ASA | Norsk Hydro vs. Orkla ASA |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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