Correlation Between Kongsberg Gruppen and Elkem ASA

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

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

Diversification Opportunities for Kongsberg Gruppen and Elkem ASA

-0.16

Correlation Coefficient

Kongsberg Gruppen  Elkem ASA

Good diversification

The 3 months correlation between Kongsberg and Elkem is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Kongsberg Gruppen ASA and Elkem ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elkem ASA and Kongsberg Gruppen 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 Kongsberg Gruppen ASA are associated (or correlated) with Elkem ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elkem ASA has no effect on the direction of Kongsberg Gruppen i.e., Kongsberg Gruppen and Elkem ASA go up and down completely randomly.

Pair Corralation between Kongsberg Gruppen and Elkem ASA

Assuming the 90 days trading horizon Kongsberg Gruppen ASA is expected to generate 1.09 times more return on investment than Elkem ASA. However, Kongsberg Gruppen is 1.09 times more volatile than Elkem ASA. It trades about 0.12 of its potential returns per unit of risk. Elkem ASA is currently generating about 0.08 per unit of risk. If you would invest  109,398  in Kongsberg Gruppen ASA on September 13, 2024 and sell it today you would earn a total of  17,702  from holding Kongsberg Gruppen ASA or generate 16.18% return on investment over 90 days.

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

Kongsberg Gruppen ASA  vs.  Elkem ASA

Kongsberg Gruppen ASA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kongsberg Gruppen ASA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, Kongsberg Gruppen disclosed solid returns over the last few months and may actually be approaching a breakup point.

Elkem ASA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elkem ASA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elkem ASA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Kongsberg Gruppen and Elkem ASA

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

The idea behind Kongsberg Gruppen ASA and Elkem 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.