Correlation Between AP Møller and Solstad Offshore

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

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

Diversification Opportunities for AP Møller and Solstad Offshore

0.61

Correlation Coefficient

AP Møller  Solstad Offshore

Poor diversification

The 3 months correlation between DP4B and Solstad is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding AP Mller 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 AP Møller 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 AP Mller 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 AP Møller i.e., AP Møller and Solstad Offshore go up and down completely randomly.

Pair Corralation between AP Møller and Solstad Offshore

Assuming the 90 days trading horizon AP Møller is expected to generate 2.54 times less return on investment than Solstad Offshore. But when comparing it to its historical volatility, AP Mller is 1.56 times less risky than Solstad Offshore. It trades about 0.05 of its potential returns per unit of risk. Solstad Offshore ASA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  285.00  in Solstad Offshore ASA on September 22, 2024 and sell it today you would earn a total of  45.00  from holding Solstad Offshore ASA or generate 15.79% return on investment over 90 days.

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

AP Mller   vs.  Solstad Offshore ASA

AP Møller

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AP Mller are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AP Møller may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Solstad Offshore ASA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Solstad Offshore ASA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Solstad Offshore unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AP Møller and Solstad Offshore

The main advantage of trading using opposite AP Møller and Solstad Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AP Møller 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 AP Mller 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.