Correlation Between NorAm Drilling and Fortune Brands

Can any of the company-specific risk be diversified away by investing in both NorAm Drilling and Fortune Brands 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 Fortune Brands 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 Fortune Brands Home, you can compare the effects of market volatilities on NorAm Drilling and Fortune Brands 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 Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorAm Drilling and Fortune Brands.

Diversification Opportunities for NorAm Drilling and Fortune Brands

0.4

Correlation Coefficient

NorAm Drilling  Fortune Brands

Very weak diversification

The 3 months correlation between NorAm and Fortune is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home 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 Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Home has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Fortune Brands go up and down completely randomly.

Pair Corralation between NorAm Drilling and Fortune Brands

Assuming the 90 days horizon NorAm Drilling AS is expected to under-perform the Fortune Brands. But the stock apears to be less risky and, when comparing its historical volatility, NorAm Drilling AS is 1.4 times less risky than Fortune Brands. The stock trades about -0.25 of its potential returns per unit of risk. The Fortune Brands Home is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,076  in Fortune Brands Home on September 16, 2024 and sell it today you would earn a total of  324.00  from holding Fortune Brands Home or generate 4.58% return on investment over 90 days.

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

NorAm Drilling AS  vs.  Fortune Brands Home

NorAm Drilling AS

Risk-Adjusted Performance

0 of 100

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Fortune Brands Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Home has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Fortune Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NorAm Drilling and Fortune Brands

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

The idea behind NorAm Drilling AS and Fortune Brands Home 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.