Correlation Between NorAm Drilling and Schneider Electric

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

Diversification Opportunities for NorAm Drilling and Schneider Electric

-0.39

Correlation Coefficient

NorAm Drilling  Schneider Electric

Very good diversification

The 3 months correlation between NorAm and Schneider is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Schneider Electric SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schneider Electric 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 Schneider Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schneider Electric has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Schneider Electric go up and down completely randomly.

Pair Corralation between NorAm Drilling and Schneider Electric

Assuming the 90 days horizon NorAm Drilling AS is expected to generate 7.75 times more return on investment than Schneider Electric. However, NorAm Drilling is 7.75 times more volatile than Schneider Electric SE. It trades about 0.06 of its potential returns per unit of risk. Schneider Electric SE is currently generating about 0.08 per unit of risk. If you would invest  126.00  in NorAm Drilling AS on October 5, 2024 and sell it today you would earn a total of  151.00  from holding NorAm Drilling AS or generate 119.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NorAm Drilling AS  vs.  Schneider Electric SE

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.

Schneider Electric

Risk-Adjusted Performance

0 of 100

Weak

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

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

The idea behind NorAm Drilling AS and Schneider Electric SE 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.