Correlation Between Polight ASA and Kongsberg Automotive

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

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

Diversification Opportunities for Polight ASA and Kongsberg Automotive

0.64

Correlation Coefficient

Polight ASA  Kongsberg Automotive

Poor diversification

The 3 months correlation between Polight and Kongsberg is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Polight ASA and Kongsberg Automotive Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kongsberg Automotive and Polight ASA 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 Polight ASA are associated (or correlated) with Kongsberg Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kongsberg Automotive has no effect on the direction of Polight ASA i.e., Polight ASA and Kongsberg Automotive go up and down completely randomly.

Pair Corralation between Polight ASA and Kongsberg Automotive

Assuming the 90 days trading horizon Polight ASA is expected to generate 1.81 times more return on investment than Kongsberg Automotive. However, Polight ASA is 1.81 times more volatile than Kongsberg Automotive Holding. It trades about 0.33 of its potential returns per unit of risk. Kongsberg Automotive Holding is currently generating about 0.22 per unit of risk. If you would invest  396.00  in Polight ASA on September 17, 2024 and sell it today you would earn a total of  134.00  from holding Polight ASA or generate 33.84% return on investment over 90 days.

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

Polight ASA  vs.  Kongsberg Automotive Holding

Polight ASA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Polight ASA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Polight ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Kongsberg Automotive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kongsberg Automotive Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Kongsberg Automotive 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 Polight ASA and Kongsberg Automotive

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

The idea behind Polight ASA and Kongsberg Automotive Holding 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.