Correlation Between Equinor ASA and Orkla ASA

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

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

Diversification Opportunities for Equinor ASA and Orkla ASA

-0.1

Correlation Coefficient

Equinor ASA  Orkla ASA

Good diversification

The 3 months correlation between Equinor and Orkla is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA and Orkla ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orkla ASA and Equinor 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 Equinor ASA are associated (or correlated) with Orkla ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orkla ASA has no effect on the direction of Equinor ASA i.e., Equinor ASA and Orkla ASA go up and down completely randomly.

Pair Corralation between Equinor ASA and Orkla ASA

Assuming the 90 days trading horizon Equinor ASA is expected to generate 35.24 times less return on investment than Orkla ASA. In addition to that, Equinor ASA is 1.48 times more volatile than Orkla ASA. It trades about 0.0 of its total potential returns per unit of risk. Orkla ASA is currently generating about 0.15 per unit of volatility. If you would invest  9,635  in Orkla ASA on November 19, 2024 and sell it today you would earn a total of  1,115  from holding Orkla ASA or generate 11.57% return on investment over 90 days.

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

Equinor ASA  vs.  Orkla ASA

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.

Orkla ASA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orkla ASA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Orkla ASA may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Equinor ASA and Orkla ASA

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

The idea behind Equinor ASA and Orkla 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.