Correlation Between Paychex and NorAm Drilling

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

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

Diversification Opportunities for Paychex and NorAm Drilling

-0.35

Correlation Coefficient

Paychex  NorAm Drilling

Very good diversification

The 3 months correlation between Paychex and NorAm is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Paychex 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 Paychex 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 Paychex 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 Paychex i.e., Paychex and NorAm Drilling go up and down completely randomly.

Pair Corralation between Paychex and NorAm Drilling

Assuming the 90 days horizon Paychex is expected to generate 0.29 times more return on investment than NorAm Drilling. However, Paychex is 3.5 times less risky than NorAm Drilling. It trades about 0.06 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.0 per unit of risk. If you would invest  10,531  in Paychex on September 12, 2024 and sell it today you would earn a total of  2,823  from holding Paychex or generate 26.81% return on investment over 90 days.

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

Paychex  vs.  NorAm Drilling AS

Paychex

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paychex are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Paychex may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NorAm Drilling AS

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NorAm Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Paychex and NorAm Drilling

The main advantage of trading using opposite Paychex and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Paychex 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 Paychex 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.