Correlation Between Frontline and Dno ASA

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

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

Diversification Opportunities for Frontline and Dno ASA

0.17

Correlation Coefficient

Frontline  Dno ASA

Average diversification

The 3 months correlation between Frontline and Dno is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Dno ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dno ASA and Frontline 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 Frontline are associated (or correlated) with Dno ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dno ASA has no effect on the direction of Frontline i.e., Frontline and Dno ASA go up and down completely randomly.

Pair Corralation between Frontline and Dno ASA

Assuming the 90 days trading horizon Frontline is expected to generate 7.65 times less return on investment than Dno ASA. In addition to that, Frontline is 1.14 times more volatile than Dno ASA. It trades about 0.02 of its total potential returns per unit of risk. Dno ASA is currently generating about 0.19 per unit of volatility. If you would invest  1,021  in Dno ASA on December 30, 2024 and sell it today you would earn a total of  393.00  from holding Dno ASA or generate 38.49% return on investment over 90 days.

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

Frontline  vs.  Dno ASA

Frontline

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Frontline are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Frontline is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Dno ASA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dno ASA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Dno ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Frontline and Dno ASA

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

The idea behind Frontline and Dno 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.