Correlation Between Aker ASA and EAM Solar

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

Diversification Opportunities for Aker ASA and EAM Solar

-0.53

Correlation Coefficient

Aker ASA  EAM Solar

Excellent diversification

The 3 months correlation between Aker and EAM is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Aker 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 Aker 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 Aker 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 Aker ASA i.e., Aker ASA and EAM Solar go up and down completely randomly.

Pair Corralation between Aker ASA and EAM Solar

Assuming the 90 days trading horizon Aker ASA is expected to under-perform the EAM Solar. But the stock apears to be less risky and, when comparing its historical volatility, Aker ASA is 3.79 times less risky than EAM Solar. The stock trades about -0.18 of its potential returns per unit of risk. The EAM Solar ASA is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  17.00  in EAM Solar ASA on September 27, 2024 and sell it today you would lose (1.00) from holding EAM Solar ASA or give up 5.88% of portfolio value over 90 days.

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

Aker ASA  vs.  EAM Solar ASA

Aker ASA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aker ASA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Aker ASA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

EAM Solar ASA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EAM Solar ASA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting primary indicators, EAM Solar disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aker ASA and EAM Solar

The main advantage of trading using opposite Aker ASA and EAM Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aker 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 Aker 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.