Correlation Between Grand Canyon and NorAm Drilling

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

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

Diversification Opportunities for Grand Canyon and NorAm Drilling

-0.63

Correlation Coefficient

Grand Canyon  NorAm Drilling

Excellent diversification

The 3 months correlation between Grand and NorAm is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Grand Canyon Education 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 Grand Canyon 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 Grand Canyon Education 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 Grand Canyon i.e., Grand Canyon and NorAm Drilling go up and down completely randomly.

Pair Corralation between Grand Canyon and NorAm Drilling

Assuming the 90 days trading horizon Grand Canyon Education is expected to generate 0.51 times more return on investment than NorAm Drilling. However, Grand Canyon Education is 1.96 times less risky than NorAm Drilling. It trades about 0.14 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about -0.03 per unit of risk. If you would invest  12,700  in Grand Canyon Education on September 30, 2024 and sell it today you would earn a total of  2,900  from holding Grand Canyon Education or generate 22.83% return on investment over 90 days.

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

Grand Canyon Education  vs.  NorAm Drilling AS

Grand Canyon Education

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grand Canyon Education are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Grand Canyon unveiled 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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Grand Canyon and NorAm Drilling

The main advantage of trading using opposite Grand Canyon and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grand Canyon 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 Grand Canyon Education 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.