Correlation Between Adidas AG and Solstad Offshore

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

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

Diversification Opportunities for Adidas AG and Solstad Offshore

0.59

Correlation Coefficient

Adidas AG  Solstad Offshore

Very weak diversification

The 3 months correlation between Adidas and Solstad is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding adidas AG and Solstad Offshore ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solstad Offshore ASA and Adidas AG 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 adidas AG are associated (or correlated) with Solstad Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solstad Offshore ASA has no effect on the direction of Adidas AG i.e., Adidas AG and Solstad Offshore go up and down completely randomly.

Pair Corralation between Adidas AG and Solstad Offshore

Assuming the 90 days trading horizon adidas AG is expected to under-perform the Solstad Offshore. But the stock apears to be less risky and, when comparing its historical volatility, adidas AG is 1.1 times less risky than Solstad Offshore. The stock trades about -0.03 of its potential returns per unit of risk. The Solstad Offshore ASA is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  327.00  in Solstad Offshore ASA on December 21, 2024 and sell it today you would lose (10.00) from holding Solstad Offshore ASA or give up 3.06% of portfolio value over 90 days.

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

adidas AG  vs.  Solstad Offshore ASA

adidas AG

Risk-Adjusted Performance

Very Weak

Over the last 90 days adidas AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Adidas AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 comparatively stable basic indicators, Solstad Offshore is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Adidas AG and Solstad Offshore

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

The idea behind adidas AG and Solstad Offshore 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.