Correlation Between Oslo Exchange and Nidaros Sparebank

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

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

Diversification Opportunities for Oslo Exchange and Nidaros Sparebank

0.68

Correlation Coefficient

Oslo Exchange  Nidaros Sparebank

Poor diversification

The 3 months correlation between Oslo and Nidaros is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Oslo Exchange Mutual and Nidaros Sparebank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nidaros Sparebank and Oslo Exchange 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 Oslo Exchange Mutual are associated (or correlated) with Nidaros Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nidaros Sparebank has no effect on the direction of Oslo Exchange i.e., Oslo Exchange and Nidaros Sparebank go up and down completely randomly.

Pair Corralation between Oslo Exchange and Nidaros Sparebank

Assuming the 90 days trading horizon Oslo Exchange Mutual is expected to generate 0.17 times more return on investment than Nidaros Sparebank. However, Oslo Exchange Mutual is 6.04 times less risky than Nidaros Sparebank. It trades about 0.5 of its potential returns per unit of risk. Nidaros Sparebank is currently generating about 0.05 per unit of risk. If you would invest  125,348  in Oslo Exchange Mutual on January 17, 2024 and sell it today you would earn a total of  5,549  from holding Oslo Exchange Mutual or generate 4.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Oslo Exchange Mutual  vs.  Nidaros Sparebank

Pair Trading with Oslo Exchange and Nidaros Sparebank

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

The idea behind Oslo Exchange Mutual and Nidaros Sparebank 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.