Correlation Between Sparebank and Goodtech

Can any of the company-specific risk be diversified away by investing in both Sparebank and Goodtech 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 Goodtech 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 Goodtech, you can compare the effects of market volatilities on Sparebank and Goodtech 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 Goodtech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and Goodtech.

Diversification Opportunities for Sparebank and Goodtech

0.82

Correlation Coefficient

Sparebank  Goodtech

Very poor diversification

The 3 months correlation between Sparebank and Goodtech is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SMN and Goodtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodtech 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 Goodtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodtech has no effect on the direction of Sparebank i.e., Sparebank and Goodtech go up and down completely randomly.

Pair Corralation between Sparebank and Goodtech

Assuming the 90 days trading horizon Sparebank is expected to generate 3.97 times less return on investment than Goodtech. But when comparing it to its historical volatility, Sparebank 1 SMN is 3.17 times less risky than Goodtech. It trades about 0.21 of its potential returns per unit of risk. Goodtech is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,245  in Goodtech on February 5, 2024 and sell it today you would earn a total of  200.00  from holding Goodtech or generate 16.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Sparebank 1 SMN  vs.  Goodtech

Sparebank 1 SMN

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SMN are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Goodtech

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goodtech are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Goodtech disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sparebank and Goodtech

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

The idea behind Sparebank 1 SMN and Goodtech 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.