Correlation Between North Energy and Pyrum Innovations

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

Diversification Opportunities for North Energy and Pyrum Innovations

0.68

Correlation Coefficient

North Energy  Pyrum Innovations

Poor diversification

The 3 months correlation between North and Pyrum is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding North Energy ASA and Pyrum Innovations AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pyrum Innovations 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 Pyrum Innovations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pyrum Innovations has no effect on the direction of North Energy i.e., North Energy and Pyrum Innovations go up and down completely randomly.

Pair Corralation between North Energy and Pyrum Innovations

Assuming the 90 days trading horizon North Energy is expected to generate 3.91 times less return on investment than Pyrum Innovations. But when comparing it to its historical volatility, North Energy ASA is 2.13 times less risky than Pyrum Innovations. It trades about 0.05 of its potential returns per unit of risk. Pyrum Innovations AG is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  29,600  in Pyrum Innovations AG on September 16, 2024 and sell it today you would earn a total of  4,800  from holding Pyrum Innovations AG or generate 16.22% return on investment over 90 days.

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

North Energy ASA  vs.  Pyrum Innovations AG

North Energy ASA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in North Energy ASA are ranked lower than 3 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

Pyrum Innovations

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pyrum Innovations AG are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Pyrum Innovations displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North Energy and Pyrum Innovations

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

The idea behind North Energy ASA and Pyrum Innovations AG 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.