Correlation Between Equinor ASA and Var Energi

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

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

Diversification Opportunities for Equinor ASA and Var Energi

0.46

Correlation Coefficient

Equinor ASA  Var Energi

Very weak diversification

The 3 months correlation between Equinor and Var is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA and Var Energi ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Var Energi 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 Var Energi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Var Energi ASA has no effect on the direction of Equinor ASA i.e., Equinor ASA and Var Energi go up and down completely randomly.

Pair Corralation between Equinor ASA and Var Energi

Assuming the 90 days trading horizon Equinor ASA is expected to generate 7.51 times less return on investment than Var Energi. But when comparing it to its historical volatility, Equinor ASA is 1.12 times less risky than Var Energi. It trades about 0.01 of its potential returns per unit of risk. Var Energi ASA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,394  in Var Energi ASA on September 26, 2024 and sell it today you would earn a total of  1,007  from holding Var Energi ASA or generate 42.06% return on investment over 90 days.

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

Equinor ASA  vs.  Var Energi ASA

Equinor ASA

Risk-Adjusted Performance

0 of 100

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 current stock price mess, may contribute to short-term losses for the institutional investors.

Var Energi ASA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Var Energi ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Var Energi may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Equinor ASA and Var Energi

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

The idea behind Equinor ASA and Var Energi 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.