Correlation Between Lea Bank and EAM Solar

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

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

Diversification Opportunities for Lea Bank and EAM Solar

-0.18

Correlation Coefficient

Lea Bank  EAM Solar

Good diversification

The 3 months correlation between Lea and EAM is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Lea Bank ASA and EAM Solar ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAM Solar ASA and Lea Bank 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 Lea Bank ASA are associated (or correlated) with EAM Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EAM Solar ASA has no effect on the direction of Lea Bank i.e., Lea Bank and EAM Solar go up and down completely randomly.

Pair Corralation between Lea Bank and EAM Solar

Assuming the 90 days trading horizon Lea Bank is expected to generate 31.18 times less return on investment than EAM Solar. But when comparing it to its historical volatility, Lea Bank ASA is 32.7 times less risky than EAM Solar. It trades about 0.14 of its potential returns per unit of risk. EAM Solar ASA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  60.00  in EAM Solar ASA on September 17, 2024 and sell it today you would lose (45.00) from holding EAM Solar ASA or give up 75.0% of portfolio value over 90 days.

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

Lea Bank ASA  vs.  EAM Solar ASA

Lea Bank ASA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lea Bank ASA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Lea Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

EAM Solar ASA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EAM Solar ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating primary indicators, EAM Solar disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lea Bank and EAM Solar

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

The idea behind Lea Bank ASA and EAM Solar 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.