Correlation Between EAM Solar and Arendals Fossekompani

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Can any of the company-specific risk be diversified away by investing in both EAM Solar and Arendals Fossekompani 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 EAM Solar and Arendals Fossekompani into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EAM Solar ASA and Arendals Fossekompani ASA, you can compare the effects of market volatilities on EAM Solar and Arendals Fossekompani 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 EAM Solar with a short position of Arendals Fossekompani. Check out your portfolio center. Please also check ongoing floating volatility patterns of EAM Solar and Arendals Fossekompani.

Diversification Opportunities for EAM Solar and Arendals Fossekompani

-0.34
  Correlation Coefficient

Very good diversification

The 3 months correlation between EAM and Arendals is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding EAM Solar ASA and Arendals Fossekompani ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arendals Fossekompani ASA and EAM Solar 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 EAM Solar ASA are associated (or correlated) with Arendals Fossekompani. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arendals Fossekompani ASA has no effect on the direction of EAM Solar i.e., EAM Solar and Arendals Fossekompani go up and down completely randomly.

Pair Corralation between EAM Solar and Arendals Fossekompani

Assuming the 90 days trading horizon EAM Solar ASA is expected to under-perform the Arendals Fossekompani. In addition to that, EAM Solar is 2.22 times more volatile than Arendals Fossekompani ASA. It trades about -0.16 of its total potential returns per unit of risk. Arendals Fossekompani ASA is currently generating about 0.42 per unit of volatility. If you would invest  14,840  in Arendals Fossekompani ASA on December 29, 2023 and sell it today you would earn a total of  3,420  from holding Arendals Fossekompani ASA or generate 23.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

EAM Solar ASA  vs.  Arendals Fossekompani ASA

 Performance 
       Timeline  
EAM Solar ASA 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days EAM Solar ASA 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 primary indicators remain quite persistent which may send shares a bit higher in April 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
Arendals Fossekompani ASA 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Arendals Fossekompani ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Arendals Fossekompani may actually be approaching a critical reversion point that can send shares even higher in April 2024.

EAM Solar and Arendals Fossekompani Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with EAM Solar and Arendals Fossekompani

The main advantage of trading using opposite EAM Solar and Arendals Fossekompani positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EAM Solar position performs unexpectedly, Arendals Fossekompani 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 Arendals Fossekompani will offset losses from the drop in Arendals Fossekompani's long position.
The idea behind EAM Solar ASA and Arendals Fossekompani 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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