Correlation Between KINGBOARD CHEMICAL and NorAm Drilling

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

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

Diversification Opportunities for KINGBOARD CHEMICAL and NorAm Drilling

-0.59

Correlation Coefficient

KINGBOARD CHEMICAL  NorAm Drilling

Excellent diversification

The 3 months correlation between KINGBOARD and NorAm is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding KINGBOARD CHEMICAL 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 KINGBOARD CHEMICAL 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 KINGBOARD CHEMICAL 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 KINGBOARD CHEMICAL i.e., KINGBOARD CHEMICAL and NorAm Drilling go up and down completely randomly.

Pair Corralation between KINGBOARD CHEMICAL and NorAm Drilling

Assuming the 90 days trading horizon KINGBOARD CHEMICAL is expected to generate 0.54 times more return on investment than NorAm Drilling. However, KINGBOARD CHEMICAL is 1.84 times less risky than NorAm Drilling. It trades about 0.15 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.02 per unit of risk. If you would invest  191.00  in KINGBOARD CHEMICAL on October 23, 2024 and sell it today you would earn a total of  57.00  from holding KINGBOARD CHEMICAL or generate 29.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

KINGBOARD CHEMICAL  vs.  NorAm Drilling AS

KINGBOARD CHEMICAL

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KINGBOARD CHEMICAL are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, KINGBOARD CHEMICAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

NorAm Drilling AS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NorAm Drilling may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with KINGBOARD CHEMICAL and NorAm Drilling

The main advantage of trading using opposite KINGBOARD CHEMICAL and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KINGBOARD CHEMICAL 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 KINGBOARD CHEMICAL 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.