Correlation Between North Energy and SD Standard

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

By analyzing existing cross correlation between North Energy ASA and SD Standard Drilling, you can compare the effects of market volatilities on North Energy and SD Standard 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 North Energy with a short position of SD Standard. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Energy and SD Standard.

Diversification Opportunities for North Energy and SD Standard

0.01

Correlation Coefficient

North Energy  SD Standard

Significant diversification

The 3 months correlation between North and SDSD is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding North Energy ASA and SD Standard Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SD Standard Drilling and North Energy 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 North Energy ASA are associated (or correlated) with SD Standard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SD Standard Drilling has no effect on the direction of North Energy i.e., North Energy and SD Standard go up and down completely randomly.

Pair Corralation between North Energy and SD Standard

Assuming the 90 days trading horizon North Energy ASA is expected to generate 2.57 times more return on investment than SD Standard. However, North Energy is 2.57 times more volatile than SD Standard Drilling. It trades about 0.02 of its potential returns per unit of risk. SD Standard Drilling is currently generating about -0.01 per unit of risk. If you would invest  270.00  in North Energy ASA on November 29, 2024 and sell it today you would earn a total of  5.00  from holding North Energy ASA or generate 1.85% return on investment over 90 days.

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

North Energy ASA  vs.  SD Standard Drilling

North Energy ASA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in North Energy ASA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, North Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

SD Standard Drilling

Risk-Adjusted Performance

Very Weak

Over the last 90 days SD Standard Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, SD Standard is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with North Energy and SD Standard

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

The idea behind North Energy ASA and SD Standard Drilling 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.