Correlation Between SD Standard and EAM Solar

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

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

Diversification Opportunities for SD Standard and EAM Solar

-0.29

Correlation Coefficient

SD Standard  EAM Solar

Very good diversification

The 3 months correlation between SDSD and EAM is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding SD Standard Drilling and EAM Solar ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAM Solar ASA and SD Standard 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 SD Standard Drilling are associated (or correlated) with EAM Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EAM Solar ASA has no effect on the direction of SD Standard i.e., SD Standard and EAM Solar go up and down completely randomly.

Pair Corralation between SD Standard and EAM Solar

Assuming the 90 days trading horizon SD Standard is expected to generate 326.8 times less return on investment than EAM Solar. But when comparing it to its historical volatility, SD Standard Drilling is 33.68 times less risky than EAM Solar. It trades about 0.01 of its potential returns per unit of risk. EAM Solar ASA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  450.00  in EAM Solar ASA on December 4, 2024 and sell it today you would lose (408.00) from holding EAM Solar ASA or give up 90.67% of portfolio value over 90 days.

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

SD Standard Drilling  vs.  EAM Solar ASA

SD Standard Drilling

Risk-Adjusted Performance

Very Weak

Over the last 90 days SD Standard Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, SD Standard is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

EAM Solar ASA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EAM Solar ASA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating primary indicators, EAM Solar disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SD Standard and EAM Solar

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

The idea behind SD Standard Drilling and EAM Solar 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.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.