Correlation Between Pareto Bank and Sparebank

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

Diversification Opportunities for Pareto Bank and Sparebank

0.41
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Pareto and Sparebank is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Pareto Bank ASA and Sparebank 1 SMN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 SMN and Pareto Bank 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 Pareto Bank ASA are associated (or correlated) with Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebank 1 SMN has no effect on the direction of Pareto Bank i.e., Pareto Bank and Sparebank go up and down completely randomly.

Pair Corralation between Pareto Bank and Sparebank

Assuming the 90 days trading horizon Pareto Bank ASA is expected to under-perform the Sparebank. In addition to that, Pareto Bank is 1.14 times more volatile than Sparebank 1 SMN. It trades about -0.05 of its total potential returns per unit of risk. Sparebank 1 SMN is currently generating about 0.04 per unit of volatility. If you would invest  16,500  in Sparebank 1 SMN on August 28, 2024 and sell it today you would earn a total of  136.00  from holding Sparebank 1 SMN or generate 0.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Pareto Bank ASA  vs.  Sparebank 1 SMN

 Performance 
       Timeline  
Pareto Bank ASA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Pareto Bank ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Pareto Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
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.

Pareto Bank and Sparebank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pareto Bank and Sparebank

The main advantage of trading using opposite Pareto Bank and Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pareto Bank position performs unexpectedly, Sparebank 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 Sparebank will offset losses from the drop in Sparebank's long position.
The idea behind Pareto Bank ASA and Sparebank 1 SMN 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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