Correlation Between NOV and North American

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

By analyzing existing cross correlation between NOV Inc and North American Construction, you can compare the effects of market volatilities on NOV and North American 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 NOV with a short position of North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of NOV and North American.

Diversification Opportunities for NOV and North American

0.45

Correlation Coefficient

NOV  North American

Very weak diversification

The 3 months correlation between NOV and North is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding NOV Inc and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const and NOV 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 NOV Inc are associated (or correlated) with North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of NOV i.e., NOV and North American go up and down completely randomly.

Pair Corralation between NOV and North American

Assuming the 90 days horizon NOV Inc is expected to generate 1.09 times more return on investment than North American. However, NOV is 1.09 times more volatile than North American Construction. It trades about 0.01 of its potential returns per unit of risk. North American Construction is currently generating about -0.19 per unit of risk. If you would invest  1,380  in NOV Inc on December 25, 2024 and sell it today you would lose (2.00) from holding NOV Inc or give up 0.14% of portfolio value over 90 days.

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

NOV Inc  vs.  North American Construction

NOV Inc

Risk-Adjusted Performance

Very Weak

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

North American Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NOV and North American

The main advantage of trading using opposite NOV and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NOV position performs unexpectedly, North American 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 North American will offset losses from the drop in North American's long position.

The idea behind NOV Inc and North American Construction 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.