Correlation Between Western Energy and Equinor ASA
Can any of the company-specific risk be diversified away by investing in both Western Energy 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 Western Energy and Equinor ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Energy Services and Equinor ASA ADR, you can compare the effects of market volatilities on Western Energy 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 Western Energy with a short position of Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Energy and Equinor ASA.
Diversification Opportunities for Western Energy and Equinor ASA
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Western and Equinor is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Western Energy Services and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR and Western Energy 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 Western Energy Services 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 ADR has no effect on the direction of Western Energy i.e., Western Energy and Equinor ASA go up and down completely randomly.
Pair Corralation between Western Energy and Equinor ASA
Assuming the 90 days horizon Western Energy Services is expected to under-perform the Equinor ASA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Western Energy Services is 1.12 times less risky than Equinor ASA. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Equinor ASA ADR is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 2,408 in Equinor ASA ADR on August 29, 2024 and sell it today you would lose (18.00) from holding Equinor ASA ADR or give up 0.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Energy Services vs. Equinor ASA ADR
Performance |
| Timeline |
| Western Energy Services |
| Equinor ASA ADR |
Western Energy and Equinor ASA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Energy and Equinor ASA
The main advantage of trading using opposite Western Energy and Equinor ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Energy 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.| Western Energy vs. Petroleo Brasileiro Petrobras | Western Energy vs. Equinor ASA ADR | Western Energy vs. Eni SpA ADR | Western Energy vs. YPF Sociedad Anonima |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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