Correlation Between NorAm Drilling and Food Life

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

Diversification Opportunities for NorAm Drilling and Food Life

-0.44

Correlation Coefficient

NorAm Drilling  Food Life

Very good diversification

The 3 months correlation between NorAm and Food is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Food Life Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Food Life Companies 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 Food Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Food Life Companies has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Food Life go up and down completely randomly.

Pair Corralation between NorAm Drilling and Food Life

Assuming the 90 days horizon NorAm Drilling AS is not expected to generate positive returns. Moreover, NorAm Drilling is 1.9 times more volatile than Food Life Companies. It trades away all of its potential returns to assume current level of volatility. Food Life Companies is currently generating about 0.14 per unit of risk. If you would invest  1,510  in Food Life Companies on September 13, 2024 and sell it today you would earn a total of  690.00  from holding Food Life Companies or generate 45.7% return on investment over 90 days.

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

NorAm Drilling AS  vs.  Food Life Companies

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

Food Life Companies

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorAm Drilling and Food Life

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

The idea behind NorAm Drilling AS and Food Life Companies 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.