Correlation Between Solstad Offshore and GSTechnologies

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

Diversification Opportunities for Solstad Offshore and GSTechnologies

0.53

Correlation Coefficient

Solstad Offshore  GSTechnologies

Very weak diversification

The 3 months correlation between Solstad and GSTechnologies is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Solstad Offshore ASA and GSTechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSTechnologies 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 GSTechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSTechnologies has no effect on the direction of Solstad Offshore i.e., Solstad Offshore and GSTechnologies go up and down completely randomly.

Pair Corralation between Solstad Offshore and GSTechnologies

Assuming the 90 days trading horizon Solstad Offshore ASA is expected to under-perform the GSTechnologies. But the stock apears to be less risky and, when comparing its historical volatility, Solstad Offshore ASA is 4.0 times less risky than GSTechnologies. The stock trades about -0.07 of its potential returns per unit of risk. The GSTechnologies is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  220.00  in GSTechnologies on December 27, 2024 and sell it today you would lose (22.00) from holding GSTechnologies or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Solstad Offshore ASA  vs.  GSTechnologies

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 unsteady 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.

GSTechnologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days GSTechnologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, GSTechnologies is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Solstad Offshore and GSTechnologies

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

The idea behind Solstad Offshore ASA and GSTechnologies 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.