Correlation Between Aker Solutions and NorAm Drilling

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

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

Diversification Opportunities for Aker Solutions and NorAm Drilling

-0.75

Correlation Coefficient

Aker Solutions  NorAm Drilling

Pay attention - limited upside

The 3 months correlation between Aker and NorAm is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Aker Solutions ASA 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 Aker Solutions 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 Aker Solutions ASA 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 Aker Solutions i.e., Aker Solutions and NorAm Drilling go up and down completely randomly.

Pair Corralation between Aker Solutions and NorAm Drilling

Assuming the 90 days trading horizon Aker Solutions ASA is expected to generate 1.93 times more return on investment than NorAm Drilling. However, Aker Solutions is 1.93 times more volatile than NorAm Drilling AS. It trades about 0.17 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about -0.33 per unit of risk. If you would invest  2,850  in Aker Solutions ASA on September 13, 2024 and sell it today you would earn a total of  260.00  from holding Aker Solutions ASA or generate 9.12% return on investment over 90 days.

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

Aker Solutions ASA  vs.  NorAm Drilling AS

Aker Solutions ASA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aker Solutions ASA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Aker Solutions disclosed solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Aker Solutions and NorAm Drilling

The main advantage of trading using opposite Aker Solutions and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aker Solutions 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 Aker Solutions ASA 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.