Correlation Between North Energy and BW Energy

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

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

Diversification Opportunities for North Energy and BW Energy

-0.61

Correlation Coefficient

North Energy  BW Energy

Excellent diversification

The 3 months correlation between North and BWE is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding North Energy ASA and BW Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Energy and North Energy 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 North Energy ASA are associated (or correlated) with BW Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Energy has no effect on the direction of North Energy i.e., North Energy and BW Energy go up and down completely randomly.

Pair Corralation between North Energy and BW Energy

Assuming the 90 days trading horizon North Energy ASA is expected to generate 0.73 times more return on investment than BW Energy. However, North Energy ASA is 1.38 times less risky than BW Energy. It trades about 0.09 of its potential returns per unit of risk. BW Energy is currently generating about -0.11 per unit of risk. If you would invest  254.00  in North Energy ASA on August 31, 2024 and sell it today you would earn a total of  23.00  from holding North Energy ASA or generate 9.06% return on investment over 90 days.

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

North Energy ASA  vs.  BW Energy

North Energy ASA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North Energy ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, North Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

BW Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Energy 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 technical and fundamental indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with North Energy and BW Energy

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

The idea behind North Energy ASA and BW Energy 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.