Correlation Between Marathon Petroleum and NorAm Drilling

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

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

Diversification Opportunities for Marathon Petroleum and NorAm Drilling

0.6

Correlation Coefficient

Marathon Petroleum  NorAm Drilling

Poor diversification

The 3 months correlation between Marathon and NorAm is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Marathon Petroleum Corp 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 Marathon Petroleum 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 Marathon Petroleum Corp 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 Marathon Petroleum i.e., Marathon Petroleum and NorAm Drilling go up and down completely randomly.

Pair Corralation between Marathon Petroleum and NorAm Drilling

Assuming the 90 days horizon Marathon Petroleum Corp is expected to generate 1.24 times more return on investment than NorAm Drilling. However, Marathon Petroleum is 1.24 times more volatile than NorAm Drilling AS. It trades about 0.05 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  12,955  in Marathon Petroleum Corp on December 29, 2024 and sell it today you would earn a total of  833.00  from holding Marathon Petroleum Corp or generate 6.43% return on investment over 90 days.

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

Marathon Petroleum Corp  vs.  NorAm Drilling AS

Marathon Petroleum Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Marathon Petroleum Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Marathon Petroleum may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NorAm Drilling AS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, NorAm Drilling is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Marathon Petroleum and NorAm Drilling

The main advantage of trading using opposite Marathon Petroleum and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marathon Petroleum 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 Marathon Petroleum Corp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .