Correlation Between Solstad Offshore and Nestl SA

Can any of the company-specific risk be diversified away by investing in both Solstad Offshore and Nestl SA 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 Nestl SA 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 Nestl SA, you can compare the effects of market volatilities on Solstad Offshore and Nestl SA 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 Nestl SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solstad Offshore and Nestl SA.

Diversification Opportunities for Solstad Offshore and Nestl SA

-0.77

Correlation Coefficient

Solstad Offshore  Nestl SA

Pay attention - limited upside

The 3 months correlation between Solstad and Nestl is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Solstad Offshore ASA and Nestl SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestl SA 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 Nestl SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestl SA has no effect on the direction of Solstad Offshore i.e., Solstad Offshore and Nestl SA go up and down completely randomly.

Pair Corralation between Solstad Offshore and Nestl SA

Assuming the 90 days trading horizon Solstad Offshore ASA is expected to under-perform the Nestl SA. In addition to that, Solstad Offshore is 1.18 times more volatile than Nestl SA. It trades about -0.02 of its total potential returns per unit of risk. Nestl SA is currently generating about 0.19 per unit of volatility. If you would invest  7,960  in Nestl SA on December 22, 2024 and sell it today you would earn a total of  1,500  from holding Nestl SA or generate 18.84% return on investment over 90 days.

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

Solstad Offshore ASA  vs.  Nestl SA

Solstad Offshore ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solstad Offshore ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Solstad Offshore is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Nestl SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nestl SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nestl SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solstad Offshore and Nestl SA

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

The idea behind Solstad Offshore ASA and Nestl SA 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.