Correlation Between SIEMENS ENERGY and NorAm Drilling

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

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

Diversification Opportunities for SIEMENS ENERGY and NorAm Drilling

0.54

Correlation Coefficient

SIEMENS ENERGY  NorAm Drilling

Very weak diversification

The 3 months correlation between SIEMENS and NorAm is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding SIEMENS ENERGY AG 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 SIEMENS ENERGY 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 SIEMENS ENERGY AG 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 SIEMENS ENERGY i.e., SIEMENS ENERGY and NorAm Drilling go up and down completely randomly.

Pair Corralation between SIEMENS ENERGY and NorAm Drilling

Assuming the 90 days trading horizon SIEMENS ENERGY is expected to generate 46.23 times less return on investment than NorAm Drilling. But when comparing it to its historical volatility, SIEMENS ENERGY AG is 1.52 times less risky than NorAm Drilling. It trades about 0.01 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  220.00  in NorAm Drilling AS on October 23, 2024 and sell it today you would earn a total of  86.00  from holding NorAm Drilling AS or generate 39.09% return on investment over 90 days.

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

SIEMENS ENERGY AG  vs.  NorAm Drilling AS

SIEMENS ENERGY AG

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SIEMENS ENERGY AG are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SIEMENS ENERGY reported solid returns over the last few months and may actually be approaching a breakup point.

NorAm Drilling AS

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NorAm Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIEMENS ENERGY and NorAm Drilling

The main advantage of trading using opposite SIEMENS ENERGY and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIEMENS ENERGY 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 SIEMENS ENERGY AG 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.