Correlation Between Northern Ocean and Deep Value

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

By analyzing existing cross correlation between Northern Ocean and Deep Value Driller, you can compare the effects of market volatilities on Northern Ocean and Deep Value 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 Northern Ocean with a short position of Deep Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Ocean and Deep Value.

Diversification Opportunities for Northern Ocean and Deep Value

0.74

Correlation Coefficient

Northern Ocean  Deep Value

Poor diversification

The 3 months correlation between Northern and Deep is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Northern Ocean and Deep Value Driller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deep Value Driller and Northern Ocean 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 Northern Ocean are associated (or correlated) with Deep Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deep Value Driller has no effect on the direction of Northern Ocean i.e., Northern Ocean and Deep Value go up and down completely randomly.

Pair Corralation between Northern Ocean and Deep Value

Assuming the 90 days trading horizon Northern Ocean is expected to under-perform the Deep Value. But the stock apears to be less risky and, when comparing its historical volatility, Northern Ocean is 2.35 times less risky than Deep Value. The stock trades about -0.08 of its potential returns per unit of risk. The Deep Value Driller is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,511  in Deep Value Driller on December 21, 2024 and sell it today you would lose (11.00) from holding Deep Value Driller or give up 0.73% of portfolio value over 90 days.

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

Northern Ocean  vs.  Deep Value Driller

Northern Ocean

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Ocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Deep Value Driller

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deep Value Driller are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Deep Value may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Northern Ocean and Deep Value

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

The idea behind Northern Ocean and Deep Value Driller 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.