Correlation Between MagnaChip Semiconductor and NorAm Drilling

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

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

Diversification Opportunities for MagnaChip Semiconductor and NorAm Drilling

0.31

Correlation Coefficient

MagnaChip Semiconductor  NorAm Drilling

Weak diversification

The 3 months correlation between MagnaChip and NorAm is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding MagnaChip Semiconductor Corp 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 MagnaChip Semiconductor 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 MagnaChip Semiconductor Corp 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 MagnaChip Semiconductor i.e., MagnaChip Semiconductor and NorAm Drilling go up and down completely randomly.

Pair Corralation between MagnaChip Semiconductor and NorAm Drilling

Assuming the 90 days trading horizon MagnaChip Semiconductor Corp is expected to under-perform the NorAm Drilling. But the stock apears to be less risky and, when comparing its historical volatility, MagnaChip Semiconductor Corp is 2.13 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 0.05 of returns per unit of risk over similar time horizon. If you would invest  276.00  in NorAm Drilling AS on December 24, 2024 and sell it today you would earn a total of  24.00  from holding NorAm Drilling AS or generate 8.7% return on investment over 90 days.

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

MagnaChip Semiconductor Corp  vs.  NorAm Drilling AS

MagnaChip Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days MagnaChip Semiconductor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

NorAm Drilling AS

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 4 (%) 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 MagnaChip Semiconductor and NorAm Drilling

The main advantage of trading using opposite MagnaChip Semiconductor and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MagnaChip Semiconductor 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 MagnaChip Semiconductor Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.