Correlation Between Deep Value and Northern Ocean

Can any of the company-specific risk be diversified away by investing in both Deep Value and Northern Ocean 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 Deep Value and Northern Ocean into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Deep Value Driller and Northern Ocean, you can compare the effects of market volatilities on Deep Value and Northern Ocean 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 Deep Value with a short position of Northern Ocean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deep Value and Northern Ocean.

Diversification Opportunities for Deep Value and Northern Ocean

-0.77

Correlation Coefficient

Deep Value  Northern Ocean

Pay attention - limited upside

The 3 months correlation between Deep and Northern is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Deep Value Driller and Northern Ocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Ocean and Deep Value 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 Deep Value Driller are associated (or correlated) with Northern Ocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Ocean has no effect on the direction of Deep Value i.e., Deep Value and Northern Ocean go up and down completely randomly.

Pair Corralation between Deep Value and Northern Ocean

Assuming the 90 days trading horizon Deep Value Driller is expected to generate 0.88 times more return on investment than Northern Ocean. However, Deep Value Driller is 1.13 times less risky than Northern Ocean. It trades about 0.17 of its potential returns per unit of risk. Northern Ocean is currently generating about -0.09 per unit of risk. If you would invest  1,639  in Deep Value Driller on October 10, 2024 and sell it today you would earn a total of  87.00  from holding Deep Value Driller or generate 5.31% return on investment over 90 days.

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

Deep Value Driller  vs.  Northern Ocean

Deep Value Driller

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deep Value Driller has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Northern Ocean

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Ocean are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Northern Ocean disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deep Value and Northern Ocean

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

The idea behind Deep Value Driller and Northern Ocean 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..