Correlation Between NorAm Drilling and Hongkong Land

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

Diversification Opportunities for NorAm Drilling and Hongkong Land

-0.51

Correlation Coefficient

NorAm Drilling  Hongkong Land

Excellent diversification

The 3 months correlation between NorAm and Hongkong is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Hongkong Land Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hongkong Land 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 Hongkong Land. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hongkong Land Holdings has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Hongkong Land go up and down completely randomly.

Pair Corralation between NorAm Drilling and Hongkong Land

Assuming the 90 days horizon NorAm Drilling AS is expected to under-perform the Hongkong Land. In addition to that, NorAm Drilling is 2.86 times more volatile than Hongkong Land Holdings. It trades about -0.04 of its total potential returns per unit of risk. Hongkong Land Holdings is currently generating about 0.04 per unit of volatility. If you would invest  424.00  in Hongkong Land Holdings on October 5, 2024 and sell it today you would earn a total of  4.00  from holding Hongkong Land Holdings or generate 0.94% 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.  Hongkong Land Holdings

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

Hongkong Land Holdings

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Hongkong Land Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Hongkong Land reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorAm Drilling and Hongkong Land

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

The idea behind NorAm Drilling AS and Hongkong Land 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.