Correlation Between Elkem ASA and Awilco Drilling

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

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

Diversification Opportunities for Elkem ASA and Awilco Drilling

-0.03

Correlation Coefficient

Elkem ASA  Awilco Drilling

Good diversification

The 3 months correlation between Elkem and Awilco is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Elkem ASA and Awilco Drilling PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Awilco Drilling PLC 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 Awilco Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Awilco Drilling PLC has no effect on the direction of Elkem ASA i.e., Elkem ASA and Awilco Drilling go up and down completely randomly.

Pair Corralation between Elkem ASA and Awilco Drilling

Assuming the 90 days trading horizon Elkem ASA is expected to under-perform the Awilco Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Elkem ASA is 2.8 times less risky than Awilco Drilling. The stock trades about -0.29 of its potential returns per unit of risk. The Awilco Drilling PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,160  in Awilco Drilling PLC on October 9, 2024 and sell it today you would earn a total of  60.00  from holding Awilco Drilling PLC or generate 2.78% return on investment over 90 days.

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

Elkem ASA  vs.  Awilco Drilling PLC

Elkem ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elkem ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Awilco Drilling PLC

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Awilco Drilling PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Awilco Drilling disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elkem ASA and Awilco Drilling

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

The idea behind Elkem ASA and Awilco Drilling PLC 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.