Correlation Between NorAm Drilling and American Homes
Can any of the company-specific risk be diversified away by investing in both NorAm Drilling and American Homes 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 American Homes 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 American Homes 4, you can compare the effects of market volatilities on NorAm Drilling and American Homes 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorAm Drilling and American Homes.
Diversification Opportunities for NorAm Drilling and American Homes
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between NorAm and American is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and American Homes go up and down completely randomly.
Pair Corralation between NorAm Drilling and American Homes
Assuming the 90 days horizon NorAm Drilling AS is expected to generate 3.35 times more return on investment than American Homes. However, NorAm Drilling is 3.35 times more volatile than American Homes 4. It trades about 0.03 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.02 per unit of risk. If you would invest 277.00 in NorAm Drilling AS on December 29, 2024 and sell it today you would lose (5.00) from holding NorAm Drilling AS or give up 1.81% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
NorAm Drilling AS vs. American Homes 4
Performance |
Timeline |
NorAm Drilling AS |
American Homes 4 |
NorAm Drilling and American Homes Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with NorAm Drilling and American Homes
The main advantage of trading using opposite NorAm Drilling and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorAm Drilling position performs unexpectedly, American Homes 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 American Homes will offset losses from the drop in American Homes' long position.NorAm Drilling vs. Take Two Interactive Software | NorAm Drilling vs. Spirent Communications plc | NorAm Drilling vs. Kingdee International Software | NorAm Drilling vs. USU Software AG |
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Check out your portfolio center.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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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