Correlation Between Equinor ASA and Aker BP

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

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

Diversification Opportunities for Equinor ASA and Aker BP

0.66

Correlation Coefficient

Equinor ASA  Aker BP

Poor diversification

The 3 months correlation between Equinor and Aker is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA and Aker BP ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aker BP ASA and Equinor 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 Equinor ASA are associated (or correlated) with Aker BP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aker BP ASA has no effect on the direction of Equinor ASA i.e., Equinor ASA and Aker BP go up and down completely randomly.

Pair Corralation between Equinor ASA and Aker BP

Assuming the 90 days trading horizon Equinor ASA is expected to generate 1.01 times more return on investment than Aker BP. However, Equinor ASA is 1.01 times more volatile than Aker BP ASA. It trades about -0.01 of its potential returns per unit of risk. Aker BP ASA is currently generating about -0.05 per unit of risk. If you would invest  27,477  in Equinor ASA on September 2, 2024 and sell it today you would lose (757.00) from holding Equinor ASA or give up 2.76% of portfolio value over 90 days.

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

Equinor ASA  vs.  Aker BP ASA

Equinor ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equinor ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Equinor ASA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Aker BP ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aker BP ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Aker BP is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Equinor ASA and Aker BP

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

The idea behind Equinor ASA and Aker BP 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.