Correlation Between DnB ASA and Reach Subsea

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

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

Diversification Opportunities for DnB ASA and Reach Subsea

-0.51

Correlation Coefficient

DnB ASA  Reach Subsea

Excellent diversification

The 3 months correlation between DnB and Reach is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding DnB ASA and Reach Subsea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reach Subsea and DnB ASA 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 DnB ASA are associated (or correlated) with Reach Subsea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reach Subsea has no effect on the direction of DnB ASA i.e., DnB ASA and Reach Subsea go up and down completely randomly.

Pair Corralation between DnB ASA and Reach Subsea

Assuming the 90 days trading horizon DnB ASA is expected to generate 0.36 times more return on investment than Reach Subsea. However, DnB ASA is 2.75 times less risky than Reach Subsea. It trades about 0.34 of its potential returns per unit of risk. Reach Subsea is currently generating about -0.03 per unit of risk. If you would invest  22,690  in DnB ASA on December 29, 2024 and sell it today you would earn a total of  4,980  from holding DnB ASA or generate 21.95% return on investment over 90 days.

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

DnB ASA  vs.  Reach Subsea

DnB ASA

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in DnB ASA are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, DnB ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Reach Subsea

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reach Subsea has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Reach Subsea is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with DnB ASA and Reach Subsea

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

The idea behind DnB ASA and Reach Subsea 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.