Correlation Between Frontline and Aker ASA

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

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

Diversification Opportunities for Frontline and Aker ASA

-0.69

Correlation Coefficient

Frontline  Aker ASA

Excellent diversification

The 3 months correlation between Frontline and Aker is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Aker ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aker ASA and Frontline 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 Frontline are associated (or correlated) with Aker ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aker ASA has no effect on the direction of Frontline i.e., Frontline and Aker ASA go up and down completely randomly.

Pair Corralation between Frontline and Aker ASA

Assuming the 90 days trading horizon Frontline is expected to under-perform the Aker ASA. In addition to that, Frontline is 1.74 times more volatile than Aker ASA. It trades about -0.28 of its total potential returns per unit of risk. Aker ASA is currently generating about 0.03 per unit of volatility. If you would invest  53,570  in Aker ASA on September 19, 2024 and sell it today you would earn a total of  1,230  from holding Aker ASA or generate 2.3% return on investment over 90 days.

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

Frontline  vs.  Aker ASA

Frontline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontline has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Aker ASA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aker ASA are ranked lower than 2 (%) 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.

Pair Trading with Frontline and Aker ASA

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

The idea behind Frontline and Aker 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.