Correlation Between E3 LITHIUM and NorAm Drilling

Can any of the company-specific risk be diversified away by investing in both E3 LITHIUM 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 E3 LITHIUM and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between E3 LITHIUM LTD and NorAm Drilling AS, you can compare the effects of market volatilities on E3 LITHIUM 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 E3 LITHIUM with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of E3 LITHIUM and NorAm Drilling.

Diversification Opportunities for E3 LITHIUM and NorAm Drilling

0.28

Correlation Coefficient

E3 LITHIUM  NorAm Drilling

Modest diversification

The 3 months correlation between OW3 and NorAm is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding E3 LITHIUM LTD 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 E3 LITHIUM 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 E3 LITHIUM LTD 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 E3 LITHIUM i.e., E3 LITHIUM and NorAm Drilling go up and down completely randomly.

Pair Corralation between E3 LITHIUM and NorAm Drilling

Assuming the 90 days horizon E3 LITHIUM LTD is expected to under-perform the NorAm Drilling. But the stock apears to be less risky and, when comparing its historical volatility, E3 LITHIUM LTD is 1.45 times less risky than NorAm Drilling. The stock trades about -0.04 of its potential returns per unit of risk. The NorAm Drilling AS is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  311.00  in NorAm Drilling AS on October 24, 2024 and sell it today you would earn a total of  16.00  from holding NorAm Drilling AS or generate 5.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

E3 LITHIUM LTD  vs.  NorAm Drilling AS

E3 LITHIUM LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E3 LITHIUM LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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.

NorAm Drilling AS

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, NorAm Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with E3 LITHIUM and NorAm Drilling

The main advantage of trading using opposite E3 LITHIUM and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E3 LITHIUM 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 E3 LITHIUM LTD 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 Commodity Directory module to find actively traded commodities issued by global exchanges.