Correlation Between Basic Materials and EQUINOR ASA

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

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

Diversification Opportunities for Basic Materials and EQUINOR ASA

-0.17

Correlation Coefficient

Basic Materials  EQUINOR ASA

Good diversification

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

Pair Corralation between Basic Materials and EQUINOR ASA

Assuming the 90 days trading horizon Basic Materials is expected to under-perform the EQUINOR ASA. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 2.23 times less risky than EQUINOR ASA. The index trades about -0.08 of its potential returns per unit of risk. The EQUINOR ASA DRN is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,021  in EQUINOR ASA DRN on October 11, 2024 and sell it today you would earn a total of  679.00  from holding EQUINOR ASA DRN or generate 9.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Basic Materials  vs.  EQUINOR ASA DRN

Pair Trading with Basic Materials and EQUINOR ASA

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

The idea behind Basic Materials and EQUINOR ASA DRN 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.