Correlation Between NorAm Drilling and WOODSIDE ENE

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

Diversification Opportunities for NorAm Drilling and WOODSIDE ENE

0.6

Correlation Coefficient

NorAm Drilling  WOODSIDE ENE

Poor diversification

The 3 months correlation between NorAm and WOODSIDE is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and WOODSIDE ENE SPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WOODSIDE ENE SPADR 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 WOODSIDE ENE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WOODSIDE ENE SPADR has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and WOODSIDE ENE go up and down completely randomly.

Pair Corralation between NorAm Drilling and WOODSIDE ENE

Assuming the 90 days horizon NorAm Drilling AS is expected to generate 2.02 times more return on investment than WOODSIDE ENE. However, NorAm Drilling is 2.02 times more volatile than WOODSIDE ENE SPADR. It trades about 0.02 of its potential returns per unit of risk. WOODSIDE ENE SPADR is currently generating about -0.01 per unit of risk. If you would invest  304.00  in NorAm Drilling AS on October 5, 2024 and sell it today you would lose (27.00) from holding NorAm Drilling AS or give up 8.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.63%
Values	Daily Returns

NorAm Drilling AS  vs.  WOODSIDE ENE SPADR

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.

WOODSIDE ENE SPADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WOODSIDE ENE SPADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak 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.

Pair Trading with NorAm Drilling and WOODSIDE ENE

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

The idea behind NorAm Drilling AS and WOODSIDE ENE SPADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.