Correlation Between Dno ASA and Pharos Energy

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

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

Diversification Opportunities for Dno ASA and Pharos Energy

0.85

Correlation Coefficient

Dno ASA  Pharos Energy

Very poor diversification

The 3 months correlation between Dno and Pharos is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dno ASA and Pharos Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharos Energy plc and Dno 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 Dno ASA are associated (or correlated) with Pharos Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharos Energy plc has no effect on the direction of Dno ASA i.e., Dno ASA and Pharos Energy go up and down completely randomly.

Pair Corralation between Dno ASA and Pharos Energy

Assuming the 90 days horizon Dno ASA is expected to generate 1.35 times more return on investment than Pharos Energy. However, Dno ASA is 1.35 times more volatile than Pharos Energy plc. It trades about -0.05 of its potential returns per unit of risk. Pharos Energy plc is currently generating about -0.1 per unit of risk. If you would invest  105.00  in Dno ASA on September 13, 2024 and sell it today you would lose (14.00) from holding Dno ASA or give up 13.33% of portfolio value over 90 days.

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

Dno ASA  vs.  Pharos Energy plc

Dno ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dno ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pharos Energy plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pharos Energy plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Dno ASA and Pharos Energy

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

The idea behind Dno ASA and Pharos Energy plc 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.