Correlation Between CAL MAINE and NorAm Drilling

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

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

Diversification Opportunities for CAL MAINE and NorAm Drilling

0.55

Correlation Coefficient

CAL MAINE  NorAm Drilling

Very weak diversification

The 3 months correlation between CAL and NorAm is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding CAL MAINE FOODS 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 CAL MAINE 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 CAL MAINE FOODS 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 CAL MAINE i.e., CAL MAINE and NorAm Drilling go up and down completely randomly.

Pair Corralation between CAL MAINE and NorAm Drilling

Assuming the 90 days trading horizon CAL MAINE is expected to generate 2.42 times less return on investment than NorAm Drilling. But when comparing it to its historical volatility, CAL MAINE FOODS is 2.02 times less risky than NorAm Drilling. It trades about 0.13 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  34.00  in NorAm Drilling AS on September 19, 2024 and sell it today you would earn a total of  251.00  from holding NorAm Drilling AS or generate 738.24% return on investment over 90 days.

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

CAL MAINE FOODS  vs.  NorAm Drilling AS

CAL MAINE FOODS

Risk-Adjusted Performance

35 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in CAL MAINE FOODS are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, CAL MAINE exhibited solid returns over the last few months and may actually be approaching a breakup point.

NorAm Drilling AS

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with CAL MAINE and NorAm Drilling

The main advantage of trading using opposite CAL MAINE and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAL MAINE 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 CAL MAINE FOODS 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..