Correlation Between Shell PLC and Equinor ASA

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

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

Diversification Opportunities for Shell PLC and Equinor ASA

0.3

Correlation Coefficient

Shell PLC  Equinor ASA

Weak diversification

The 3 months correlation between Shell and Equinor is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC and Equinor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA and Shell PLC 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 Shell PLC 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 has no effect on the direction of Shell PLC i.e., Shell PLC and Equinor ASA go up and down completely randomly.

Pair Corralation between Shell PLC and Equinor ASA

Assuming the 90 days horizon Shell PLC is expected to generate 1.03 times less return on investment than Equinor ASA. But when comparing it to its historical volatility, Shell PLC is 1.02 times less risky than Equinor ASA. It trades about 0.03 of its potential returns per unit of risk. Equinor ASA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,454  in Equinor ASA on October 22, 2024 and sell it today you would earn a total of  61.00  from holding Equinor ASA or generate 2.49% return on investment over 90 days.

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

Shell PLC  vs.  Equinor ASA

Shell PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Shell PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Equinor ASA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Equinor ASA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Equinor ASA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Shell PLC and Equinor ASA

The main advantage of trading using opposite Shell PLC and Equinor ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shell PLC 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 Shell PLC and Equinor 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.