Correlation Between EAM Solar and Kongsberg Gruppen

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

Diversification Opportunities for EAM Solar and Kongsberg Gruppen

-0.59

Correlation Coefficient

EAM Solar  Kongsberg Gruppen

Excellent diversification

The 3 months correlation between EAM and Kongsberg is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding EAM Solar ASA and Kongsberg Gruppen ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kongsberg Gruppen 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 Kongsberg Gruppen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kongsberg Gruppen ASA has no effect on the direction of EAM Solar i.e., EAM Solar and Kongsberg Gruppen go up and down completely randomly.

Pair Corralation between EAM Solar and Kongsberg Gruppen

Assuming the 90 days trading horizon EAM Solar ASA is expected to generate 1.87 times more return on investment than Kongsberg Gruppen. However, EAM Solar is 1.87 times more volatile than Kongsberg Gruppen ASA. It trades about 0.17 of its potential returns per unit of risk. Kongsberg Gruppen ASA is currently generating about 0.06 per unit of risk. If you would invest  1,385  in EAM Solar ASA on January 28, 2024 and sell it today you would earn a total of  165.00  from holding EAM Solar ASA or generate 11.91% return on investment over 90 days.

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

EAM Solar ASA  vs.  Kongsberg Gruppen ASA

EAM Solar ASA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EAM Solar ASA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent primary indicators, EAM Solar is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Kongsberg Gruppen ASA

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kongsberg Gruppen ASA are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, Kongsberg Gruppen disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EAM Solar and Kongsberg Gruppen

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

The idea behind EAM Solar ASA and Kongsberg Gruppen 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.