Correlation Between Solstad Offshore and East Africa

Can any of the company-specific risk be diversified away by investing in both Solstad Offshore and East Africa 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 Solstad Offshore and East Africa into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Solstad Offshore and East Africa

1.0

Correlation Coefficient

Solstad Offshore  East Africa

No risk reduction

The 3 months correlation between Solstad and East is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Solstad Offshore ASA and East Africa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Africa Metals and Solstad Offshore 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 Solstad Offshore ASA are associated (or correlated) with East Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Africa Metals has no effect on the direction of Solstad Offshore i.e., Solstad Offshore and East Africa go up and down completely randomly.

Pair Corralation between Solstad Offshore and East Africa

Assuming the 90 days horizon Solstad Offshore is expected to generate 27.23 times less return on investment than East Africa. But when comparing it to its historical volatility, Solstad Offshore ASA is 14.38 times less risky than East Africa. It trades about 0.04 of its potential returns per unit of risk. East Africa Metals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9.15  in East Africa Metals on October 15, 2024 and sell it today you would earn a total of  1.85  from holding East Africa Metals or generate 20.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

Solstad Offshore ASA  vs.  East Africa Metals

Solstad Offshore ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solstad Offshore ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Solstad Offshore is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

East Africa Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Africa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, East Africa is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Solstad Offshore and East Africa

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

The idea behind Solstad Offshore ASA and East Africa Metals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.