Correlation Between Equinor ASA and Western Energy

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Can any of the company-specific risk be diversified away by investing in both Equinor ASA and Western Energy 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 Western Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equinor ASA ADR and Western Energy Services, you can compare the effects of market volatilities on Equinor ASA and Western Energy 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 Western Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equinor ASA and Western Energy.

Diversification Opportunities for Equinor ASA and Western Energy

0.37
  Correlation Coefficient

Weak diversification

The 3 months correlation between Equinor and Western is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA ADR and Western Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Energy Services 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 ADR are associated (or correlated) with Western Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Energy Services has no effect on the direction of Equinor ASA i.e., Equinor ASA and Western Energy go up and down completely randomly.

Pair Corralation between Equinor ASA and Western Energy

Given the investment horizon of 90 days Equinor ASA ADR is expected to generate 1.16 times more return on investment than Western Energy. However, Equinor ASA is 1.16 times more volatile than Western Energy Services. It trades about 0.14 of its potential returns per unit of risk. Western Energy Services is currently generating about 0.05 per unit of risk. If you would invest  2,291  in Equinor ASA ADR on September 1, 2024 and sell it today you would earn a total of  127.00  from holding Equinor ASA ADR or generate 5.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Equinor ASA ADR  vs.  Western Energy Services

 Performance 
       Timeline  
Equinor ASA ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Equinor ASA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Equinor ASA is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.
Western Energy Services 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Western Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Equinor ASA and Western Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Equinor ASA and Western Energy

The main advantage of trading using opposite Equinor ASA and Western Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equinor ASA position performs unexpectedly, Western Energy 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 Western Energy will offset losses from the drop in Western Energy's long position.
The idea behind Equinor ASA ADR and Western Energy Services 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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