Correlation Between Energy and Vow ASA

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

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

Diversification Opportunities for Energy and Vow ASA

0.25

Correlation Coefficient

Energy  Vow ASA

Modest diversification

The 3 months correlation between Energy and Vow is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Water and Vow ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vow ASA and Energy 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 Energy and Water are associated (or correlated) with Vow ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vow ASA has no effect on the direction of Energy i.e., Energy and Vow ASA go up and down completely randomly.

Pair Corralation between Energy and Vow ASA

Given the investment horizon of 90 days Energy is expected to generate 1.58 times less return on investment than Vow ASA. In addition to that, Energy is 2.5 times more volatile than Vow ASA. It trades about 0.01 of its total potential returns per unit of risk. Vow ASA is currently generating about 0.05 per unit of volatility. If you would invest  16.00  in Vow ASA on December 28, 2024 and sell it today you would earn a total of  1.00  from holding Vow ASA or generate 6.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Energy and Water  vs.  Vow ASA

Energy and Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy and Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather fragile basic indicators, Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vow ASA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vow ASA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Vow ASA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy and Vow ASA

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

The idea behind Energy and Water and Vow 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.