Correlation Between Aker Solutions and SeaBird Exploration

Can any of the company-specific risk be diversified away by investing in both Aker Solutions and SeaBird Exploration 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 Aker Solutions and SeaBird Exploration into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Aker Solutions and SeaBird Exploration

0.89

Correlation Coefficient

Aker Solutions  SeaBird Exploration

Very poor diversification

The 3 months correlation between Aker and SeaBird is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Aker Solutions ASA and SeaBird Exploration Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SeaBird Exploration Plc and Aker Solutions 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 Aker Solutions ASA are associated (or correlated) with SeaBird Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SeaBird Exploration Plc has no effect on the direction of Aker Solutions i.e., Aker Solutions and SeaBird Exploration go up and down completely randomly.

Pair Corralation between Aker Solutions and SeaBird Exploration

Assuming the 90 days trading horizon Aker Solutions ASA is expected to generate 1.99 times more return on investment than SeaBird Exploration. However, Aker Solutions is 1.99 times more volatile than SeaBird Exploration Plc. It trades about 0.2 of its potential returns per unit of risk. SeaBird Exploration Plc is currently generating about 0.23 per unit of risk. If you would invest  2,417  in Aker Solutions ASA on September 5, 2024 and sell it today you would earn a total of  953.00  from holding Aker Solutions ASA or generate 39.43% return on investment over 90 days.

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

Aker Solutions ASA  vs.  SeaBird Exploration Plc

Aker Solutions ASA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aker Solutions ASA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Aker Solutions disclosed solid returns over the last few months and may actually be approaching a breakup point.

SeaBird Exploration Plc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SeaBird Exploration Plc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, SeaBird Exploration disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aker Solutions and SeaBird Exploration

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

The idea behind Aker Solutions ASA and SeaBird Exploration Plc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.