Correlation Between Oslo Exchange and BIST Electricity

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

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

Diversification Opportunities for Oslo Exchange and BIST Electricity

-0.46

Correlation Coefficient

Oslo Exchange  BIST Electricity

Very good diversification

The 3 months correlation between Oslo and BIST is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Oslo Exchange Mutual and BIST Electricity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BIST Electricity and Oslo Exchange 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 Oslo Exchange Mutual are associated (or correlated) with BIST Electricity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BIST Electricity has no effect on the direction of Oslo Exchange i.e., Oslo Exchange and BIST Electricity go up and down completely randomly.

Pair Corralation between Oslo Exchange and BIST Electricity

Assuming the 90 days trading horizon Oslo Exchange Mutual is expected to generate 0.45 times more return on investment than BIST Electricity. However, Oslo Exchange Mutual is 2.25 times less risky than BIST Electricity. It trades about 0.05 of its potential returns per unit of risk. BIST Electricity is currently generating about -0.03 per unit of risk. If you would invest  137,979  in Oslo Exchange Mutual on September 1, 2024 and sell it today you would earn a total of  2,983  from holding Oslo Exchange Mutual or generate 2.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Oslo Exchange Mutual  vs.  BIST Electricity

Pair Trading with Oslo Exchange and BIST Electricity

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

The idea behind Oslo Exchange Mutual and BIST Electricity 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.