Correlation Between Vulcan Materials and NorAm Drilling

Can any of the company-specific risk be diversified away by investing in both Vulcan Materials and NorAm Drilling 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 Vulcan Materials and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vulcan Materials and NorAm Drilling AS, you can compare the effects of market volatilities on Vulcan Materials and NorAm Drilling 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 Vulcan Materials with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vulcan Materials and NorAm Drilling.

Diversification Opportunities for Vulcan Materials and NorAm Drilling

0.5

Correlation Coefficient

Vulcan Materials  NorAm Drilling

Very weak diversification

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

Pair Corralation between Vulcan Materials and NorAm Drilling

Assuming the 90 days horizon Vulcan Materials is expected to generate 0.5 times more return on investment than NorAm Drilling. However, Vulcan Materials is 1.99 times less risky than NorAm Drilling. It trades about -0.36 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about -0.31 per unit of risk. 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

Vulcan Materials  vs.  NorAm Drilling AS

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.

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.

Pair Trading with Vulcan Materials and NorAm Drilling

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

The idea behind Vulcan Materials and NorAm Drilling AS 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.