Correlation Between Equinor ASA and Shell PLC

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

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

Diversification Opportunities for Equinor ASA and Shell PLC

0.35

Correlation Coefficient

Equinor ASA  Shell PLC

Weak diversification

The 3 months correlation between Equinor and Shell is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC and Equinor 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 Equinor ASA are associated (or correlated) with Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of Equinor ASA i.e., Equinor ASA and Shell PLC go up and down completely randomly.

Pair Corralation between Equinor ASA and Shell PLC

Assuming the 90 days horizon Equinor ASA is expected to under-perform the Shell PLC. But the pink sheet apears to be less risky and, when comparing its historical volatility, Equinor ASA is 1.01 times less risky than Shell PLC. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Shell PLC is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,260  in Shell PLC on September 15, 2024 and sell it today you would lose (89.00) from holding Shell PLC or give up 2.73% of portfolio value over 90 days.

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

Equinor ASA  vs.  Shell PLC

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 nearly stable technical indicators, Equinor ASA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Shell PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Shell PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Equinor ASA and Shell PLC

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

The idea behind Equinor ASA and Shell PLC 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 Global Correlations module to find global opportunities by holding instruments from different markets.