Correlation Between North Energy and Solstad Offsho

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

Diversification Opportunities for North Energy and Solstad Offsho

-0.46

Correlation Coefficient

North Energy  Solstad Offsho

Very good diversification

The 3 months correlation between North and Solstad is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding North Energy ASA and Solstad Offsho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solstad Offsho 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 Solstad Offsho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solstad Offsho has no effect on the direction of North Energy i.e., North Energy and Solstad Offsho go up and down completely randomly.

Pair Corralation between North Energy and Solstad Offsho

Assuming the 90 days trading horizon North Energy ASA is expected to generate 1.03 times more return on investment than Solstad Offsho. However, North Energy is 1.03 times more volatile than Solstad Offsho. It trades about -0.02 of its potential returns per unit of risk. Solstad Offsho is currently generating about -0.09 per unit of risk. If you would invest  276.00  in North Energy ASA on December 2, 2024 and sell it today you would lose (11.00) from holding North Energy ASA or give up 3.99% of portfolio value over 90 days.

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

North Energy ASA  vs.  Solstad Offsho

North Energy ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days North Energy ASA has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Solstad Offsho

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solstad Offsho has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with North Energy and Solstad Offsho

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

The idea behind North Energy ASA and Solstad Offsho 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.