Correlation Between Archer and Northern Ocean

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

By analyzing existing cross correlation between Archer Limited and Northern Ocean, you can compare the effects of market volatilities on Archer and Northern Ocean 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 Archer with a short position of Northern Ocean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Archer and Northern Ocean.

Diversification Opportunities for Archer and Northern Ocean

-0.13

Correlation Coefficient

Archer  Northern Ocean

Good diversification

The 3 months correlation between Archer and Northern is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Archer Limited and Northern Ocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Ocean and Archer 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 Archer Limited are associated (or correlated) with Northern Ocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Ocean has no effect on the direction of Archer i.e., Archer and Northern Ocean go up and down completely randomly.

Pair Corralation between Archer and Northern Ocean

Assuming the 90 days trading horizon Archer Limited is expected to under-perform the Northern Ocean. But the stock apears to be less risky and, when comparing its historical volatility, Archer Limited is 1.7 times less risky than Northern Ocean. The stock trades about -0.01 of its potential returns per unit of risk. The Northern Ocean is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  640.00  in Northern Ocean on September 23, 2024 and sell it today you would earn a total of  106.00  from holding Northern Ocean or generate 16.56% return on investment over 90 days.

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

Archer Limited  vs.  Northern Ocean

Archer Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archer Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Archer is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Northern Ocean

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Ocean are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Northern Ocean disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Archer and Northern Ocean

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

The idea behind Archer Limited and Northern Ocean 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.