Correlation Between Solstad Offshore and European Metals

Can any of the company-specific risk be diversified away by investing in both Solstad Offshore and European Metals 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 Solstad Offshore and European Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Solstad Offshore and European Metals

0.7

Correlation Coefficient

Solstad Offshore  European Metals

Poor diversification

The 3 months correlation between Solstad and European is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Solstad Offshore ASA and European Metals Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Metals Holdings and Solstad Offshore 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 Solstad Offshore ASA are associated (or correlated) with European Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Metals Holdings has no effect on the direction of Solstad Offshore i.e., Solstad Offshore and European Metals go up and down completely randomly.

Pair Corralation between Solstad Offshore and European Metals

Assuming the 90 days trading horizon Solstad Offshore ASA is expected to generate 0.76 times more return on investment than European Metals. However, Solstad Offshore ASA is 1.31 times less risky than European Metals. It trades about -0.09 of its potential returns per unit of risk. European Metals Holdings is currently generating about -0.1 per unit of risk. If you would invest  4,120  in Solstad Offshore ASA on December 2, 2024 and sell it today you would lose (518.00) from holding Solstad Offshore ASA or give up 12.57% of portfolio value over 90 days.

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

Solstad Offshore ASA  vs.  European Metals Holdings

Solstad Offshore ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solstad Offshore ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

European Metals Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days European Metals Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Solstad Offshore and European Metals

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

The idea behind Solstad Offshore ASA and European Metals Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.