Correlation Between AJ LUCAS and NorAm Drilling

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

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

Diversification Opportunities for AJ LUCAS and NorAm Drilling

0.22

Correlation Coefficient

AJ LUCAS  NorAm Drilling

Modest diversification

The 3 months correlation between FW9 and NorAm is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding AJ LUCAS GROUP 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 AJ LUCAS 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 AJ LUCAS GROUP 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 AJ LUCAS i.e., AJ LUCAS and NorAm Drilling go up and down completely randomly.

Pair Corralation between AJ LUCAS and NorAm Drilling

Assuming the 90 days horizon AJ LUCAS GROUP is expected to generate 6.04 times more return on investment than NorAm Drilling. However, AJ LUCAS is 6.04 times more volatile than NorAm Drilling AS. It trades about 0.11 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.01 per unit of risk. If you would invest  0.15  in AJ LUCAS GROUP on September 5, 2024 and sell it today you would lose (0.05) from holding AJ LUCAS GROUP or give up 33.33% of portfolio value over 90 days.

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

AJ LUCAS GROUP  vs.  NorAm Drilling AS

AJ LUCAS GROUP

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AJ LUCAS GROUP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AJ LUCAS 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. Despite nearly stable basic indicators, NorAm Drilling is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AJ LUCAS and NorAm Drilling

The main advantage of trading using opposite AJ LUCAS and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AJ LUCAS 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 AJ LUCAS GROUP 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.

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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.