Correlation Between NorAm Drilling and MI Homes

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

Diversification Opportunities for NorAm Drilling and MI Homes

0.07

Correlation Coefficient

NorAm Drilling  MI Homes

Significant diversification

The 3 months correlation between NorAm and 4MI is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes 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 MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and MI Homes go up and down completely randomly.

Pair Corralation between NorAm Drilling and MI Homes

Assuming the 90 days trading horizon NorAm Drilling AS is expected to generate 1.42 times more return on investment than MI Homes. However, NorAm Drilling is 1.42 times more volatile than MI Homes. It trades about 0.01 of its potential returns per unit of risk. MI Homes is currently generating about -0.58 per unit of risk. If you would invest  290.00  in NorAm Drilling AS on October 5, 2024 and sell it today you would earn a total of  0.00  from holding NorAm Drilling AS or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

NorAm Drilling AS  vs.  MI Homes

NorAm Drilling AS

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 7 (%) 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.

MI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes 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.

Pair Trading with NorAm Drilling and MI Homes

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

The idea behind NorAm Drilling AS and MI Homes 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.