Correlation Between NorAm Drilling and Tower Semiconductor

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

Diversification Opportunities for NorAm Drilling and Tower Semiconductor

0.27

Correlation Coefficient

NorAm Drilling  Tower Semiconductor

Modest diversification

The 3 months correlation between NorAm and Tower is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Tower Semiconductor go up and down completely randomly.

Pair Corralation between NorAm Drilling and Tower Semiconductor

Assuming the 90 days trading horizon NorAm Drilling AS is expected to generate 0.75 times more return on investment than Tower Semiconductor. However, NorAm Drilling AS is 1.33 times less risky than Tower Semiconductor. It trades about 0.09 of its potential returns per unit of risk. Tower Semiconductor is currently generating about -0.18 per unit of risk. If you would invest  248.00  in NorAm Drilling AS on December 20, 2024 and sell it today you would earn a total of  27.00  from holding NorAm Drilling AS or generate 10.89% return on investment over 90 days.

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

NorAm Drilling AS  vs.  Tower Semiconductor

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.

Tower Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tower Semiconductor 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 April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NorAm Drilling and Tower Semiconductor

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

The idea behind NorAm Drilling AS and Tower Semiconductor 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.