Correlation Between SD Standard and Norwegian Air

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

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

Diversification Opportunities for SD Standard and Norwegian Air

0.3

Correlation Coefficient

SD Standard  Norwegian Air

Weak diversification

The 3 months correlation between SDSD and Norwegian is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding SD Standard Drilling and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle and SD Standard 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 SD Standard Drilling are associated (or correlated) with Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of SD Standard i.e., SD Standard and Norwegian Air go up and down completely randomly.

Pair Corralation between SD Standard and Norwegian Air

Assuming the 90 days trading horizon SD Standard Drilling is expected to generate 0.38 times more return on investment than Norwegian Air. However, SD Standard Drilling is 2.63 times less risky than Norwegian Air. It trades about 0.15 of its potential returns per unit of risk. Norwegian Air Shuttle is currently generating about 0.04 per unit of risk. If you would invest  172.00  in SD Standard Drilling on December 21, 2024 and sell it today you would earn a total of  15.00  from holding SD Standard Drilling or generate 8.72% return on investment over 90 days.

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

SD Standard Drilling  vs.  Norwegian Air Shuttle

SD Standard Drilling

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SD Standard Drilling are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, SD Standard may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Norwegian Air Shuttle

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Air Shuttle are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Norwegian Air is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SD Standard and Norwegian Air

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

The idea behind SD Standard Drilling and Norwegian Air Shuttle 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.