Correlation Between NorAm Drilling and TRAINLINE PLC

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

Diversification Opportunities for NorAm Drilling and TRAINLINE PLC

0.68

Correlation Coefficient

NorAm Drilling  TRAINLINE PLC

Poor diversification

The 3 months correlation between NorAm and TRAINLINE is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and TRAINLINE PLC LS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAINLINE PLC LS 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 TRAINLINE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAINLINE PLC LS has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and TRAINLINE PLC go up and down completely randomly.

Pair Corralation between NorAm Drilling and TRAINLINE PLC

Assuming the 90 days trading horizon NorAm Drilling AS is expected to under-perform the TRAINLINE PLC. In addition to that, NorAm Drilling is 1.7 times more volatile than TRAINLINE PLC LS. It trades about -0.05 of its total potential returns per unit of risk. TRAINLINE PLC LS is currently generating about 0.13 per unit of volatility. If you would invest  482.00  in TRAINLINE PLC LS on October 4, 2024 and sell it today you would earn a total of  18.00  from holding TRAINLINE PLC LS or generate 3.73% return on investment over 90 days.

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

NorAm Drilling AS  vs.  TRAINLINE PLC LS

NorAm Drilling AS

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NorAm Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

TRAINLINE PLC LS

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAINLINE PLC LS are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAINLINE PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorAm Drilling and TRAINLINE PLC

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

The idea behind NorAm Drilling AS and TRAINLINE PLC LS 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.