Correlation Between NorAm Drilling and Deere

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

Diversification Opportunities for NorAm Drilling and Deere

0.34

Correlation Coefficient

NorAm Drilling  Deere

Weak diversification

The 3 months correlation between NorAm and Deere is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Deere Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deere Company 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 Deere. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deere Company has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Deere go up and down completely randomly.

Pair Corralation between NorAm Drilling and Deere

Assuming the 90 days horizon NorAm Drilling is expected to generate 1.02 times less return on investment than Deere. In addition to that, NorAm Drilling is 3.55 times more volatile than Deere Company. It trades about 0.04 of its total potential returns per unit of risk. Deere Company is currently generating about 0.15 per unit of volatility. If you would invest  41,010  in Deere Company on December 2, 2024 and sell it today you would earn a total of  4,835  from holding Deere Company or generate 11.79% return on investment over 90 days.

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

NorAm Drilling AS  vs.  Deere Company

NorAm Drilling AS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 2 (%) 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.

Deere Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Deere Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Deere 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 Deere

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

The idea behind NorAm Drilling AS and Deere Company 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.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .