Correlation Between Shelf Drilling and EAM Solar

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

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

Diversification Opportunities for Shelf Drilling and EAM Solar

0.51

Correlation Coefficient

Shelf Drilling  EAM Solar

Very weak diversification

The 3 months correlation between Shelf and EAM is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Shelf 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 Shelf Drilling 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 Shelf 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 Shelf Drilling i.e., Shelf Drilling and EAM Solar go up and down completely randomly.

Pair Corralation between Shelf Drilling and EAM Solar

Assuming the 90 days trading horizon Shelf Drilling is expected to under-perform the EAM Solar. But the stock apears to be less risky and, when comparing its historical volatility, Shelf Drilling is 19.0 times less risky than EAM Solar. The stock trades about -0.16 of its potential returns per unit of risk. The EAM Solar ASA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  98.00  in EAM Solar ASA on September 14, 2024 and sell it today you would lose (82.00) from holding EAM Solar ASA or give up 83.67% of portfolio value over 90 days.

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

Shelf Drilling  vs.  EAM Solar ASA

Shelf Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shelf Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

EAM Solar ASA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EAM Solar ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting primary indicators, EAM Solar disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shelf Drilling and EAM Solar

The main advantage of trading using opposite Shelf Drilling and EAM Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shelf Drilling 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 Shelf 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.