Correlation Between NorAm Drilling and Altria

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

Diversification Opportunities for NorAm Drilling and Altria

0.79

Correlation Coefficient

NorAm Drilling  Altria

Poor diversification

The 3 months correlation between NorAm and Altria is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Altria Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altria Group 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 Altria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altria Group has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Altria go up and down completely randomly.

Pair Corralation between NorAm Drilling and Altria

Assuming the 90 days trading horizon NorAm Drilling AS is expected to generate 4.01 times more return on investment than Altria. However, NorAm Drilling is 4.01 times more volatile than Altria Group. It trades about 0.16 of its potential returns per unit of risk. Altria Group is currently generating about 0.08 per unit of risk. If you would invest  15.00  in NorAm Drilling AS on October 10, 2024 and sell it today you would earn a total of  263.00  from holding NorAm Drilling AS or generate 1753.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.8%
Values	Daily Returns

NorAm Drilling AS  vs.  Altria Group

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.

Altria Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Altria may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NorAm Drilling and Altria

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

The idea behind NorAm Drilling AS and Altria Group 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.