Correlation Between Equinor ASA and TotalEnergies

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

By analyzing existing cross correlation between Equinor ASA and TotalEnergies SE ADR, you can compare the effects of market volatilities on Equinor ASA and TotalEnergies 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 TotalEnergies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equinor ASA and TotalEnergies.

Diversification Opportunities for Equinor ASA and TotalEnergies

0.43

Correlation Coefficient

Equinor ASA  TotalEnergies

Very weak diversification

The 3 months correlation between Equinor and TotalEnergies is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA and TotalEnergies SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE ADR 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE ADR has no effect on the direction of Equinor ASA i.e., Equinor ASA and TotalEnergies go up and down completely randomly.

Pair Corralation between Equinor ASA and TotalEnergies

Assuming the 90 days horizon Equinor ASA is expected to generate 2.01 times more return on investment than TotalEnergies. However, Equinor ASA is 2.01 times more volatile than TotalEnergies SE ADR. It trades about -0.03 of its potential returns per unit of risk. TotalEnergies SE ADR is currently generating about -0.21 per unit of risk. If you would invest  2,491  in Equinor ASA on September 16, 2024 and sell it today you would lose (191.00) from holding Equinor ASA or give up 7.67% of portfolio value over 90 days.

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

Equinor ASA  vs.  TotalEnergies SE ADR

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.

TotalEnergies SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TotalEnergies SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Equinor ASA and TotalEnergies

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

The idea behind Equinor ASA and TotalEnergies SE ADR 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.