Correlation Between NorAm Drilling and Ares Management

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

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

Diversification Opportunities for NorAm Drilling and Ares Management

0.26

Correlation Coefficient

NorAm Drilling  Ares Management

Modest diversification

The 3 months correlation between NorAm and Ares is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Ares Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management Corp and NorAm Drilling 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 NorAm Drilling AS are associated (or correlated) with Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management Corp has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Ares Management go up and down completely randomly.

Pair Corralation between NorAm Drilling and Ares Management

Assuming the 90 days horizon NorAm Drilling AS is expected to under-perform the Ares Management. In addition to that, NorAm Drilling is 2.97 times more volatile than Ares Management Corp. It trades about 0.0 of its total potential returns per unit of risk. Ares Management Corp is currently generating about 0.09 per unit of volatility. If you would invest  16,338  in Ares Management Corp on November 20, 2024 and sell it today you would earn a total of  1,462  from holding Ares Management Corp or generate 8.95% return on investment over 90 days.

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

NorAm Drilling AS  vs.  Ares Management Corp

NorAm Drilling AS

Risk-Adjusted Performance

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 nearly stable basic indicators, NorAm Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Ares Management Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Management Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Ares Management may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with NorAm Drilling and Ares Management

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

The idea behind NorAm Drilling AS and Ares Management Corp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.