Correlation Between Equinor ASA and PCI Biotech

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

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

Diversification Opportunities for Equinor ASA and PCI Biotech

0.25

Correlation Coefficient

Equinor ASA  PCI Biotech

Modest diversification

The 3 months correlation between Equinor and PCI is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA and PCI Biotech Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PCI Biotech Holding 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 PCI Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PCI Biotech Holding has no effect on the direction of Equinor ASA i.e., Equinor ASA and PCI Biotech go up and down completely randomly.

Pair Corralation between Equinor ASA and PCI Biotech

Assuming the 90 days trading horizon Equinor ASA is expected to generate 0.27 times more return on investment than PCI Biotech. However, Equinor ASA is 3.7 times less risky than PCI Biotech. It trades about -0.01 of its potential returns per unit of risk. PCI Biotech Holding is currently generating about -0.03 per unit of risk. If you would invest  27,477  in Equinor ASA on September 2, 2024 and sell it today you would lose (757.00) from holding Equinor ASA or give up 2.76% of portfolio value over 90 days.

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

Equinor ASA  vs.  PCI Biotech Holding

Equinor ASA

Risk-Adjusted Performance

0 of 100

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.

PCI Biotech Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PCI Biotech Holding 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 essential 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 Equinor ASA and PCI Biotech

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

The idea behind Equinor ASA and PCI Biotech Holding 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.