Correlation Between Elkem ASA and Aega ASA

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

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

Diversification Opportunities for Elkem ASA and Aega ASA

-0.2

Correlation Coefficient

Elkem ASA  Aega ASA

Good diversification

The 3 months correlation between Elkem and Aega is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Elkem ASA and Aega ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aega ASA and Elkem 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 Elkem ASA are associated (or correlated) with Aega ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aega ASA has no effect on the direction of Elkem ASA i.e., Elkem ASA and Aega ASA go up and down completely randomly.

Pair Corralation between Elkem ASA and Aega ASA

Assuming the 90 days trading horizon Elkem ASA is expected to generate 1.03 times less return on investment than Aega ASA. But when comparing it to its historical volatility, Elkem ASA is 4.04 times less risky than Aega ASA. It trades about 0.12 of its potential returns per unit of risk. Aega ASA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  34.00  in Aega ASA on December 26, 2024 and sell it today you would lose (8.00) from holding Aega ASA or give up 23.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.33%
Values	Daily Returns

Elkem ASA  vs.  Aega ASA

Elkem ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elkem ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elkem ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aega ASA

Risk-Adjusted Performance

Weak

Over the last 90 days Aega ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite conflicting essential indicators, Aega ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elkem ASA and Aega ASA

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

The idea behind Elkem ASA and Aega 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.