Correlation Between Elkem ASA and Goodtech

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

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

Diversification Opportunities for Elkem ASA and Goodtech

0.45

Correlation Coefficient

Elkem ASA  Goodtech

Very weak diversification

The 3 months correlation between Elkem and Goodtech is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Elkem ASA and Goodtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodtech 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 Goodtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodtech has no effect on the direction of Elkem ASA i.e., Elkem ASA and Goodtech go up and down completely randomly.

Pair Corralation between Elkem ASA and Goodtech

Assuming the 90 days trading horizon Elkem ASA is expected to generate 0.89 times more return on investment than Goodtech. However, Elkem ASA is 1.13 times less risky than Goodtech. It trades about 0.08 of its potential returns per unit of risk. Goodtech is currently generating about -0.09 per unit of risk. If you would invest  1,715  in Elkem ASA on September 13, 2024 and sell it today you would earn a total of  159.00  from holding Elkem ASA or generate 9.27% return on investment over 90 days.

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

Elkem ASA  vs.  Goodtech

Elkem ASA

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elkem ASA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elkem ASA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Goodtech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goodtech 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 fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Elkem ASA and Goodtech

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

The idea behind Elkem ASA and Goodtech 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.