Correlation Between Elkem ASA and Equinor ASA

Can any of the company-specific risk be diversified away by investing in both Elkem ASA and Equinor 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 Equinor 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 Equinor ASA, you can compare the effects of market volatilities on Elkem ASA and Equinor 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 Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elkem ASA and Equinor ASA.

Diversification Opportunities for Elkem ASA and Equinor ASA

-0.37

Correlation Coefficient

Elkem ASA  Equinor ASA

Very good diversification

The 3 months correlation between Elkem and Equinor is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Elkem ASA and Equinor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA has no effect on the direction of Elkem ASA i.e., Elkem ASA and Equinor ASA go up and down completely randomly.

Pair Corralation between Elkem ASA and Equinor ASA

Assuming the 90 days trading horizon Elkem ASA is expected to generate 1.39 times more return on investment than Equinor ASA. However, Elkem ASA is 1.39 times more volatile than Equinor ASA. It trades about 0.07 of its potential returns per unit of risk. Equinor ASA is currently generating about -0.05 per unit of risk. If you would invest  2,240  in Elkem ASA on November 29, 2024 and sell it today you would earn a total of  76.00  from holding Elkem ASA or generate 3.39% 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.  Equinor 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 10 (%) 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.

Equinor ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equinor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Equinor ASA 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 Elkem ASA and Equinor ASA

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

The idea behind Elkem ASA and Equinor 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.