Correlation Between DNB NOR and Equinor ASA

Can any of the company-specific risk be diversified away by investing in both DNB NOR and Equinor 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 DNB NOR and Equinor ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DNB NOR KAPFORV and Equinor ASA, you can compare the effects of market volatilities on DNB NOR and Equinor 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 DNB NOR with a short position of Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of DNB NOR and Equinor ASA.

Diversification Opportunities for DNB NOR and Equinor ASA

0.41

Correlation Coefficient

DNB NOR  Equinor ASA

Very weak diversification

The 3 months correlation between DNB and Equinor is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding DNB NOR KAPFORV and Equinor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA and DNB NOR 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 DNB NOR KAPFORV are associated (or correlated) with Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA has no effect on the direction of DNB NOR i.e., DNB NOR and Equinor ASA go up and down completely randomly.

Pair Corralation between DNB NOR and Equinor ASA

Assuming the 90 days trading horizon DNB NOR KAPFORV is expected to generate 0.08 times more return on investment than Equinor ASA. However, DNB NOR KAPFORV is 11.93 times less risky than Equinor ASA. It trades about -0.01 of its potential returns per unit of risk. Equinor ASA is currently generating about -0.01 per unit of risk. If you would invest  109,438  in DNB NOR KAPFORV on September 18, 2024 and sell it today you would lose (75.00) from holding DNB NOR KAPFORV or give up 0.07% of portfolio value over 90 days.

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

DNB NOR KAPFORV  vs.  Equinor ASA

DNB NOR KAPFORV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DNB NOR KAPFORV has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, DNB NOR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equinor ASA

Risk-Adjusted Performance

0 of 100

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

Pair Trading with DNB NOR and Equinor ASA

The main advantage of trading using opposite DNB NOR and Equinor ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DNB NOR position performs unexpectedly, Equinor 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 Equinor ASA will offset losses from the drop in Equinor ASA's long position.

The idea behind DNB NOR KAPFORV and Equinor 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.