Correlation Between Elis SA and NorAm Drilling

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

By analyzing existing cross correlation between Elis SA and NorAm Drilling AS, you can compare the effects of market volatilities on Elis SA and NorAm Drilling 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 Elis SA with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elis SA and NorAm Drilling.

Diversification Opportunities for Elis SA and NorAm Drilling

0.59

Correlation Coefficient

Elis SA  NorAm Drilling

Very weak diversification

The 3 months correlation between Elis and NorAm is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Elis SA and NorAm Drilling AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorAm Drilling AS and Elis SA 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 Elis SA are associated (or correlated) with NorAm Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorAm Drilling AS has no effect on the direction of Elis SA i.e., Elis SA and NorAm Drilling go up and down completely randomly.

Pair Corralation between Elis SA and NorAm Drilling

Assuming the 90 days horizon Elis SA is expected to generate 0.36 times more return on investment than NorAm Drilling. However, Elis SA is 2.77 times less risky than NorAm Drilling. It trades about 0.03 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.0 per unit of risk. If you would invest  1,637  in Elis SA on October 4, 2024 and sell it today you would earn a total of  241.00  from holding Elis SA or generate 14.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.7%
Values	Daily Returns

Elis SA  vs.  NorAm Drilling AS

Elis SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elis SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Elis SA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

NorAm Drilling AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NorAm Drilling AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Elis SA and NorAm Drilling

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

The idea behind Elis SA and NorAm Drilling AS 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.