Correlation Between NorAm Drilling and Vulcan Materials

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

Diversification Opportunities for NorAm Drilling and Vulcan Materials

0.5

Correlation Coefficient

NorAm Drilling  Vulcan Materials

Very weak diversification

The 3 months correlation between NorAm and Vulcan is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials 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 Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Vulcan Materials go up and down completely randomly.

Pair Corralation between NorAm Drilling and Vulcan Materials

Assuming the 90 days trading horizon NorAm Drilling AS is expected to under-perform the Vulcan Materials. In addition to that, NorAm Drilling is 1.99 times more volatile than Vulcan Materials. It trades about -0.31 of its total potential returns per unit of risk. Vulcan Materials is currently generating about -0.36 per unit of volatility. If you would invest  27,200  in Vulcan Materials on September 25, 2024 and sell it today you would lose (2,200) from holding Vulcan Materials or give up 8.09% of portfolio value over 90 days.

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

NorAm Drilling AS  vs.  Vulcan Materials

NorAm Drilling AS

Risk-Adjusted Performance

0 of 100

Very Weak

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 stable basic indicators, NorAm Drilling is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vulcan Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Vulcan Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorAm Drilling and Vulcan Materials

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

The idea behind NorAm Drilling AS and Vulcan Materials 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.