Correlation Between Melhus Sparebank and Storebrand ASA

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

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

Diversification Opportunities for Melhus Sparebank and Storebrand ASA

0.52

Correlation Coefficient

Melhus Sparebank  Storebrand ASA

Very weak diversification

The 3 months correlation between Melhus and Storebrand is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Melhus Sparebank and Storebrand ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Storebrand ASA and Melhus 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 Melhus Sparebank are associated (or correlated) with Storebrand ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Storebrand ASA has no effect on the direction of Melhus Sparebank i.e., Melhus Sparebank and Storebrand ASA go up and down completely randomly.

Pair Corralation between Melhus Sparebank and Storebrand ASA

Assuming the 90 days trading horizon Melhus Sparebank is expected to under-perform the Storebrand ASA. But the stock apears to be less risky and, when comparing its historical volatility, Melhus Sparebank is 3.14 times less risky than Storebrand ASA. The stock trades about -0.15 of its potential returns per unit of risk. The Storebrand ASA is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  9,508  in Storebrand ASA on January 28, 2024 and sell it today you would earn a total of  1,132  from holding Storebrand ASA or generate 11.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Melhus Sparebank  vs.  Storebrand ASA

Melhus Sparebank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Melhus Sparebank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Melhus Sparebank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Storebrand ASA

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Melhus Sparebank and Storebrand ASA

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

The idea behind Melhus Sparebank and Storebrand ASA 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.