Correlation Between NorAm Drilling and Sea

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

Diversification Opportunities for NorAm Drilling and Sea

-0.11

Correlation Coefficient

NorAm Drilling  Sea

Good diversification

The 3 months correlation between NorAm and Sea is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Sea Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Limited 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Limited has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Sea go up and down completely randomly.

Pair Corralation between NorAm Drilling and Sea

Assuming the 90 days horizon NorAm Drilling is expected to generate 1.18 times less return on investment than Sea. In addition to that, NorAm Drilling is 2.42 times more volatile than Sea Limited. It trades about 0.04 of its total potential returns per unit of risk. Sea Limited is currently generating about 0.1 per unit of volatility. If you would invest  10,380  in Sea Limited on December 27, 2024 and sell it today you would earn a total of  1,600  from holding Sea Limited or generate 15.41% return on investment over 90 days.

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

NorAm Drilling AS  vs.  Sea Limited

NorAm Drilling AS

Risk-Adjusted Performance

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 weak basic indicators, NorAm Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Sea Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sea reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorAm Drilling and Sea

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

The idea behind NorAm Drilling AS and Sea Limited 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.