Correlation Between USU Software and NorAm Drilling

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

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

Diversification Opportunities for USU Software and NorAm Drilling

-0.24

Correlation Coefficient

USU Software  NorAm Drilling

Very good diversification

The 3 months correlation between USU and NorAm is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding USU Software AG 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 USU Software 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 USU Software AG 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 USU Software i.e., USU Software and NorAm Drilling go up and down completely randomly.

Pair Corralation between USU Software and NorAm Drilling

Assuming the 90 days trading horizon USU Software AG is expected to generate 0.42 times more return on investment than NorAm Drilling. However, USU Software AG is 2.38 times less risky than NorAm Drilling. It trades about 0.07 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  1,830  in USU Software AG on October 4, 2024 and sell it today you would earn a total of  320.00  from holding USU Software AG or generate 17.49% return on investment over 90 days.

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

USU Software AG  vs.  NorAm Drilling AS

USU Software AG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in USU Software AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, USU Software is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

NorAm Drilling AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NorAm Drilling AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with USU Software and NorAm Drilling

The main advantage of trading using opposite USU Software and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if USU Software 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 USU Software AG 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.