Correlation Between NorAm Drilling and Evolution

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

Diversification Opportunities for NorAm Drilling and Evolution

0.59

Correlation Coefficient

NorAm Drilling  Evolution

Very weak diversification

The 3 months correlation between NorAm and Evolution is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Evolution AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution AB 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 Evolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution AB has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Evolution go up and down completely randomly.

Pair Corralation between NorAm Drilling and Evolution

Assuming the 90 days horizon NorAm Drilling AS is expected to under-perform the Evolution. In addition to that, NorAm Drilling is 3.29 times more volatile than Evolution AB. It trades about -0.14 of its total potential returns per unit of risk. Evolution AB is currently generating about -0.23 per unit of volatility. If you would invest  8,378  in Evolution AB on September 22, 2024 and sell it today you would lose (658.00) from holding Evolution AB or give up 7.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

NorAm Drilling AS  vs.  Evolution AB

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 unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Evolution AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolution AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with NorAm Drilling and Evolution

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

The idea behind NorAm Drilling AS and Evolution AB 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.