Correlation Between NORTHERN OCEAN and ODFJELL DRILLLTD

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

By analyzing existing cross correlation between NORTHERN OCEAN LTD and ODFJELL DRILLLTD DL 01, you can compare the effects of market volatilities on NORTHERN OCEAN and ODFJELL DRILLLTD 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 NORTHERN OCEAN with a short position of ODFJELL DRILLLTD. Check out your portfolio center. Please also check ongoing floating volatility patterns of NORTHERN OCEAN and ODFJELL DRILLLTD.

Diversification Opportunities for NORTHERN OCEAN and ODFJELL DRILLLTD

0.71

Correlation Coefficient

NORTHERN OCEAN  ODFJELL DRILLLTD

Poor diversification

The 3 months correlation between NORTHERN and ODFJELL is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding NORTHERN OCEAN LTD and ODFJELL DRILLLTD DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ODFJELL DRILLLTD and NORTHERN OCEAN 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 NORTHERN OCEAN LTD are associated (or correlated) with ODFJELL DRILLLTD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ODFJELL DRILLLTD has no effect on the direction of NORTHERN OCEAN i.e., NORTHERN OCEAN and ODFJELL DRILLLTD go up and down completely randomly.

Pair Corralation between NORTHERN OCEAN and ODFJELL DRILLLTD

Assuming the 90 days horizon NORTHERN OCEAN LTD is expected to generate 1.22 times more return on investment than ODFJELL DRILLLTD. However, NORTHERN OCEAN is 1.22 times more volatile than ODFJELL DRILLLTD DL 01. It trades about 0.08 of its potential returns per unit of risk. ODFJELL DRILLLTD DL 01 is currently generating about 0.05 per unit of risk. If you would invest  57.00  in NORTHERN OCEAN LTD on September 2, 2024 and sell it today you would earn a total of  10.00  from holding NORTHERN OCEAN LTD or generate 17.54% return on investment over 90 days.

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

NORTHERN OCEAN LTD  vs.  ODFJELL DRILLLTD DL 01

NORTHERN OCEAN LTD

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NORTHERN OCEAN LTD are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NORTHERN OCEAN reported solid returns over the last few months and may actually be approaching a breakup point.

ODFJELL DRILLLTD

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ODFJELL DRILLLTD DL 01 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ODFJELL DRILLLTD may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NORTHERN OCEAN and ODFJELL DRILLLTD

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

The idea behind NORTHERN OCEAN LTD and ODFJELL DRILLLTD DL 01 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.