Correlation Between NorAm Drilling and PSI Software

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

Diversification Opportunities for NorAm Drilling and PSI Software

-0.44

Correlation Coefficient

NorAm Drilling  PSI Software

Very good diversification

The 3 months correlation between NorAm and PSI is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and PSI Software AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSI Software AG 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 PSI Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSI Software AG has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and PSI Software go up and down completely randomly.

Pair Corralation between NorAm Drilling and PSI Software

Assuming the 90 days trading horizon NorAm Drilling is expected to generate 2.73 times less return on investment than PSI Software. In addition to that, NorAm Drilling is 3.39 times more volatile than PSI Software AG. It trades about 0.01 of its total potential returns per unit of risk. PSI Software AG is currently generating about 0.13 per unit of volatility. If you would invest  2,080  in PSI Software AG on October 5, 2024 and sell it today you would earn a total of  40.00  from holding PSI Software AG or generate 1.92% return on investment over 90 days.

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

NorAm Drilling AS  vs.  PSI Software AG

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 weak basic indicators, NorAm Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

PSI Software AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSI Software AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PSI Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NorAm Drilling and PSI Software

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

The idea behind NorAm Drilling AS and PSI Software AG 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.