Correlation Between Costco Wholesale and NorAm Drilling

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

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

Diversification Opportunities for Costco Wholesale and NorAm Drilling

0.19

Correlation Coefficient

Costco Wholesale  NorAm Drilling

Average diversification

The 3 months correlation between Costco and NorAm is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale i.e., Costco Wholesale and NorAm Drilling go up and down completely randomly.

Pair Corralation between Costco Wholesale and NorAm Drilling

Assuming the 90 days horizon Costco Wholesale is expected to under-perform the NorAm Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale is 3.19 times less risky than NorAm Drilling. The stock trades about -0.05 of its potential returns per unit of risk. The NorAm Drilling AS is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  276.00  in NorAm Drilling AS on December 26, 2024 and sell it today you would earn a total of  2.00  from holding NorAm Drilling AS or generate 0.72% return on investment over 90 days.

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

Costco Wholesale  vs.  NorAm Drilling AS

Costco Wholesale

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Costco Wholesale 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

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NorAm Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and NorAm Drilling

The main advantage of trading using opposite Costco Wholesale and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale 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 Costco Wholesale 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.