Correlation Between Aega ASA and EAM Solar

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

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

Diversification Opportunities for Aega ASA and EAM Solar

0.38

Correlation Coefficient

Aega ASA  EAM Solar

Weak diversification

The 3 months correlation between Aega and EAM is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Aega ASA and EAM Solar ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAM Solar ASA and Aega 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 Aega ASA are associated (or correlated) with EAM Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EAM Solar ASA has no effect on the direction of Aega ASA i.e., Aega ASA and EAM Solar go up and down completely randomly.

Pair Corralation between Aega ASA and EAM Solar

Assuming the 90 days trading horizon Aega ASA is expected to generate 2.3 times less return on investment than EAM Solar. But when comparing it to its historical volatility, Aega ASA is 2.28 times less risky than EAM Solar. It trades about 0.13 of its potential returns per unit of risk. EAM Solar ASA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  60.00  in EAM Solar ASA on September 17, 2024 and sell it today you would lose (45.00) from holding EAM Solar ASA or give up 75.0% of portfolio value over 90 days.

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

Aega ASA  vs.  EAM Solar ASA

Aega ASA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aega ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Aega ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

EAM Solar ASA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EAM Solar ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating primary indicators, EAM Solar disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aega ASA and EAM Solar

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

The idea behind Aega ASA and EAM Solar 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.