Correlation Between North Energy and DnB ASA

Can any of the company-specific risk be diversified away by investing in both North Energy and DnB 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 North Energy and DnB ASA 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 DnB ASA, you can compare the effects of market volatilities on North Energy and DnB 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 North Energy with a short position of DnB ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Energy and DnB ASA.

Diversification Opportunities for North Energy and DnB ASA

-0.04

Correlation Coefficient

North Energy  DnB ASA

Good diversification

The 3 months correlation between North and DnB is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding North Energy ASA and DnB ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DnB ASA 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 DnB ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DnB ASA has no effect on the direction of North Energy i.e., North Energy and DnB ASA go up and down completely randomly.

Pair Corralation between North Energy and DnB ASA

Assuming the 90 days trading horizon North Energy is expected to generate 3.82 times less return on investment than DnB ASA. In addition to that, North Energy is 2.89 times more volatile than DnB ASA. It trades about 0.03 of its total potential returns per unit of risk. DnB ASA is currently generating about 0.34 per unit of volatility. If you would invest  22,690  in DnB ASA on December 29, 2024 and sell it today you would earn a total of  4,980  from holding DnB ASA or generate 21.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

North Energy ASA  vs.  DnB ASA

North Energy ASA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in North Energy ASA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, North Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

DnB ASA

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in DnB ASA are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, DnB ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North Energy and DnB ASA

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

The idea behind North Energy ASA and DnB 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.