Correlation Between NorAm Drilling and CF Industries

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

Diversification Opportunities for NorAm Drilling and CF Industries

0.0

Correlation Coefficient

NorAm Drilling  CF Industries

Pay attention - limited upside

The 3 months correlation between NorAm and C4F is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings 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 CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and CF Industries go up and down completely randomly.

Pair Corralation between NorAm Drilling and CF Industries

If you would invest  248.00  in NorAm Drilling AS on December 20, 2024 and sell it today you would earn a total of  30.00  from holding NorAm Drilling AS or generate 12.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	1.69%
Values	Daily Returns

NorAm Drilling AS  vs.  CF Industries Holdings

NorAm Drilling AS

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NorAm Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

CF Industries Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days CF Industries Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, CF Industries 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 CF Industries

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

The idea behind NorAm Drilling AS and CF Industries Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.