Correlation Between NorAm Drilling and Quaker Chemical

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

Diversification Opportunities for NorAm Drilling and Quaker Chemical

0.37

Correlation Coefficient

NorAm Drilling  Quaker Chemical

Weak diversification

The 3 months correlation between NorAm and Quaker is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Quaker Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quaker Chemical 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 Quaker Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quaker Chemical has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Quaker Chemical go up and down completely randomly.

Pair Corralation between NorAm Drilling and Quaker Chemical

Assuming the 90 days trading horizon NorAm Drilling AS is expected to generate 2.73 times more return on investment than Quaker Chemical. However, NorAm Drilling is 2.73 times more volatile than Quaker Chemical. It trades about -0.03 of its potential returns per unit of risk. Quaker Chemical 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 lose (6.00) from holding NorAm Drilling AS or give up 2.07% of portfolio value over 90 days.

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

NorAm Drilling AS  vs.  Quaker Chemical

NorAm Drilling AS

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days NorAm Drilling AS has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Quaker Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quaker Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with NorAm Drilling and Quaker Chemical

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

The idea behind NorAm Drilling AS and Quaker Chemical 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.