Correlation Between NorAm Drilling and Asbury Automotive

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

Diversification Opportunities for NorAm Drilling and Asbury Automotive

-0.54

Correlation Coefficient

NorAm Drilling  Asbury Automotive

Excellent diversification

The 3 months correlation between NorAm and Asbury is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Asbury Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asbury Automotive 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 Asbury Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asbury Automotive has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Asbury Automotive go up and down completely randomly.

Pair Corralation between NorAm Drilling and Asbury Automotive

Assuming the 90 days horizon NorAm Drilling AS is expected to under-perform the Asbury Automotive. In addition to that, NorAm Drilling is 2.22 times more volatile than Asbury Automotive Group. It trades about 0.0 of its total potential returns per unit of risk. Asbury Automotive Group is currently generating about 0.03 per unit of volatility. If you would invest  20,600  in Asbury Automotive Group on October 4, 2024 and sell it today you would earn a total of  2,400  from holding Asbury Automotive Group or generate 11.65% 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.  Asbury Automotive Group

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Asbury Automotive

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asbury Automotive Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Asbury Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorAm Drilling and Asbury Automotive

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

The idea behind NorAm Drilling AS and Asbury Automotive Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.