Correlation Between Kongsberg Gruppen and Solstad Offsho

Can any of the company-specific risk be diversified away by investing in both Kongsberg Gruppen and Solstad Offsho 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 Solstad Offsho 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 Solstad Offsho, you can compare the effects of market volatilities on Kongsberg Gruppen and Solstad Offsho 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 Solstad Offsho. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kongsberg Gruppen and Solstad Offsho.

Diversification Opportunities for Kongsberg Gruppen and Solstad Offsho

0.68

Correlation Coefficient

Kongsberg Gruppen  Solstad Offsho

Poor diversification

The 3 months correlation between Kongsberg and Solstad is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Kongsberg Gruppen ASA and Solstad Offsho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solstad Offsho 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 Solstad Offsho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solstad Offsho has no effect on the direction of Kongsberg Gruppen i.e., Kongsberg Gruppen and Solstad Offsho go up and down completely randomly.

Pair Corralation between Kongsberg Gruppen and Solstad Offsho

Assuming the 90 days trading horizon Kongsberg Gruppen is expected to generate 1.12 times less return on investment than Solstad Offsho. But when comparing it to its historical volatility, Kongsberg Gruppen ASA is 1.61 times less risky than Solstad Offsho. It trades about 0.12 of its potential returns per unit of risk. Solstad Offsho is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,376  in Solstad Offsho on September 12, 2024 and sell it today you would earn a total of  540.00  from holding Solstad Offsho or generate 16.0% return on investment over 90 days.

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

Kongsberg Gruppen ASA  vs.  Solstad Offsho

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.

Solstad Offsho

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solstad Offsho are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Solstad Offsho disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kongsberg Gruppen and Solstad Offsho

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

The idea behind Kongsberg Gruppen ASA and Solstad Offsho 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.