Correlation Between Subsea 7 and Equinor ASA
Can any of the company-specific risk be diversified away by investing in both Subsea 7 and Equinor ASA 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 Subsea 7 and Equinor ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Subsea 7 SA and Equinor ASA, you can compare the effects of market volatilities on Subsea 7 and Equinor ASA 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 Subsea 7 with a short position of Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Subsea 7 and Equinor ASA.
Diversification Opportunities for Subsea 7 and Equinor ASA
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Subsea and Equinor is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Subsea 7 SA and Equinor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA and Subsea 7 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 Subsea 7 SA are associated (or correlated) with Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA has no effect on the direction of Subsea 7 i.e., Subsea 7 and Equinor ASA go up and down completely randomly.
Pair Corralation between Subsea 7 and Equinor ASA
Assuming the 90 days trading horizon Subsea 7 is expected to generate 1.16 times less return on investment than Equinor ASA. But when comparing it to its historical volatility, Subsea 7 SA is 1.12 times less risky than Equinor ASA. It trades about 0.15 of its potential returns per unit of risk. Equinor ASA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 25,408 in Equinor ASA on September 5, 2024 and sell it today you would earn a total of 1,717 from holding Equinor ASA or generate 6.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Subsea 7 SA vs. Equinor ASA
Performance |
| Timeline |
| Subsea 7 SA |
| Equinor ASA |
Subsea 7 and Equinor ASA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Subsea 7 and Equinor ASA
The main advantage of trading using opposite Subsea 7 and Equinor ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subsea 7 position performs unexpectedly, Equinor ASA 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 Equinor ASA will offset losses from the drop in Equinor ASA's long position.The idea behind Subsea 7 SA and Equinor ASA 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.Check out your portfolio center.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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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