Correlation Between Equinor ASA and Eni SpA

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

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

Diversification Opportunities for Equinor ASA and Eni SpA

0.64

Correlation Coefficient

Equinor ASA  Eni SpA

Poor diversification

The 3 months correlation between Equinor and Eni is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA and Eni SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eni SpA and Equinor ASA 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 Equinor ASA are associated (or correlated) with Eni SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eni SpA has no effect on the direction of Equinor ASA i.e., Equinor ASA and Eni SpA go up and down completely randomly.

Pair Corralation between Equinor ASA and Eni SpA

Assuming the 90 days horizon Equinor ASA is expected to generate 1.41 times less return on investment than Eni SpA. But when comparing it to its historical volatility, Equinor ASA is 1.26 times less risky than Eni SpA. It trades about 0.13 of its potential returns per unit of risk. Eni SpA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,341  in Eni SpA on December 28, 2024 and sell it today you would earn a total of  310.00  from holding Eni SpA or generate 23.12% return on investment over 90 days.

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

Equinor ASA  vs.  Eni SpA

Equinor ASA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equinor ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Equinor ASA reported solid returns over the last few months and may actually be approaching a breakup point.

Eni SpA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eni SpA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Eni SpA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Equinor ASA and Eni SpA

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

The idea behind Equinor ASA and Eni SpA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.