Correlation Between Equinor ASA and Prairie Provident

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

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

Diversification Opportunities for Equinor ASA and Prairie Provident

0.31

Correlation Coefficient

Equinor ASA  Prairie Provident

Weak diversification

The 3 months correlation between Equinor and Prairie is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA ADR and Prairie Provident Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prairie Provident 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 ADR are associated (or correlated) with Prairie Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prairie Provident has no effect on the direction of Equinor ASA i.e., Equinor ASA and Prairie Provident go up and down completely randomly.

Pair Corralation between Equinor ASA and Prairie Provident

Given the investment horizon of 90 days Equinor ASA is expected to generate 22.69 times less return on investment than Prairie Provident. But when comparing it to its historical volatility, Equinor ASA ADR is 18.8 times less risky than Prairie Provident. It trades about 0.11 of its potential returns per unit of risk. Prairie Provident Resources is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1.06  in Prairie Provident Resources on December 29, 2024 and sell it today you would earn a total of  1.46  from holding Prairie Provident Resources or generate 137.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

Equinor ASA ADR  vs.  Prairie Provident Resources

Equinor ASA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equinor ASA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Equinor ASA reported solid returns over the last few months and may actually be approaching a breakup point.

Prairie Provident

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prairie Provident reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Equinor ASA and Prairie Provident

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

The idea behind Equinor ASA ADR and Prairie Provident Resources 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.