Correlation Between NorAm Drilling and Tokyu Construction

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

Diversification Opportunities for NorAm Drilling and Tokyu Construction

0.07

Correlation Coefficient

NorAm Drilling  Tokyu Construction

Significant diversification

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

Pair Corralation between NorAm Drilling and Tokyu Construction

Assuming the 90 days trading horizon NorAm Drilling is expected to generate 1.18 times less return on investment than Tokyu Construction. In addition to that, NorAm Drilling is 1.68 times more volatile than Tokyu Construction Co. It trades about 0.09 of its total potential returns per unit of risk. Tokyu Construction Co is currently generating about 0.19 per unit of volatility. If you would invest  418.00  in Tokyu Construction Co on December 20, 2024 and sell it today you would earn a total of  58.00  from holding Tokyu Construction Co or generate 13.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

NorAm Drilling AS  vs.  Tokyu Construction Co

NorAm Drilling AS

Risk-Adjusted Performance

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 fragile basic indicators, NorAm Drilling may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tokyu Construction

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyu Construction Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tokyu Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorAm Drilling and Tokyu Construction

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

The idea behind NorAm Drilling AS and Tokyu Construction Co 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .