Correlation Between EAM Solar and SD Standard

Can any of the company-specific risk be diversified away by investing in both EAM Solar and SD Standard 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 EAM Solar and SD Standard into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for EAM Solar and SD Standard

-0.24

Correlation Coefficient

EAM Solar  SD Standard

Very good diversification

The 3 months correlation between EAM and SDSD is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding EAM Solar ASA and SD Standard Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SD Standard Drilling and EAM Solar 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 EAM Solar ASA are associated (or correlated) with SD Standard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SD Standard Drilling has no effect on the direction of EAM Solar i.e., EAM Solar and SD Standard go up and down completely randomly.

Pair Corralation between EAM Solar and SD Standard

Assuming the 90 days trading horizon EAM Solar ASA is expected to generate 104.19 times more return on investment than SD Standard. However, EAM Solar is 104.19 times more volatile than SD Standard Drilling. It trades about 0.13 of its potential returns per unit of risk. SD Standard Drilling is currently generating about 0.09 per unit of risk. If you would invest  98.00  in EAM Solar ASA on September 14, 2024 and sell it today you would lose (82.00) from holding EAM Solar ASA or give up 83.67% of portfolio value over 90 days.

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

EAM Solar ASA  vs.  SD Standard Drilling

EAM Solar ASA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EAM Solar ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting primary indicators, EAM Solar disclosed solid returns over the last few months and may actually be approaching a breakup point.

SD Standard Drilling

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SD Standard Drilling are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, SD Standard 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 EAM Solar and SD Standard

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

The idea behind EAM Solar ASA and SD Standard Drilling 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.