Correlation Between Arendals Fossekompani and Equinor ASA

Can any of the company-specific risk be diversified away by investing in both Arendals Fossekompani and Equinor ASA 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 Arendals Fossekompani and Equinor ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Arendals Fossekompani and Equinor ASA

0.57

Correlation Coefficient

Arendals Fossekompani  Equinor ASA

Very weak diversification

The 3 months correlation between Arendals and Equinor is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Arendals Fossekompani ASA and Equinor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA and Arendals Fossekompani 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 Arendals Fossekompani ASA are associated (or correlated) with Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA has no effect on the direction of Arendals Fossekompani i.e., Arendals Fossekompani and Equinor ASA go up and down completely randomly.

Pair Corralation between Arendals Fossekompani and Equinor ASA

Assuming the 90 days trading horizon Arendals Fossekompani ASA is expected to under-perform the Equinor ASA. But the stock apears to be less risky and, when comparing its historical volatility, Arendals Fossekompani ASA is 1.02 times less risky than Equinor ASA. The stock trades about -0.07 of its potential returns per unit of risk. The Equinor ASA is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  27,446  in Equinor ASA on December 31, 2024 and sell it today you would lose (86.00) from holding Equinor ASA or give up 0.31% of portfolio value over 90 days.

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

Arendals Fossekompani ASA  vs.  Equinor ASA

Arendals Fossekompani ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arendals Fossekompani ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Equinor ASA

Risk-Adjusted Performance

Insignificant

Over the last 90 days Equinor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Equinor ASA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Arendals Fossekompani and Equinor ASA

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

The idea behind Arendals Fossekompani ASA and Equinor 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.