Correlation Between ITV Plc and NorAm Drilling

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

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

Diversification Opportunities for ITV Plc and NorAm Drilling

0.2

Correlation Coefficient

ITV Plc  NorAm Drilling

Modest diversification

The 3 months correlation between ITV and NorAm is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ITV plc 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 ITV Plc 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 ITV plc 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 ITV Plc i.e., ITV Plc and NorAm Drilling go up and down completely randomly.

Pair Corralation between ITV Plc and NorAm Drilling

Assuming the 90 days horizon ITV plc is expected to generate 0.48 times more return on investment than NorAm Drilling. However, ITV plc is 2.08 times less risky than NorAm Drilling. It trades about 0.29 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about -0.14 per unit of risk. If you would invest  74.00  in ITV plc on September 23, 2024 and sell it today you would earn a total of  12.00  from holding ITV plc or generate 16.22% return on investment over 90 days.

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

ITV plc  vs.  NorAm Drilling AS

ITV plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITV plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ITV Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ITV Plc and NorAm Drilling

The main advantage of trading using opposite ITV Plc and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITV Plc 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 ITV plc 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.