Correlation Between NorAm Drilling and Tencent Holdings

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

Diversification Opportunities for NorAm Drilling and Tencent Holdings

0.18

Correlation Coefficient

NorAm Drilling  Tencent Holdings

Average diversification

The 3 months correlation between NorAm and Tencent is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Tencent Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tencent Holdings 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 Tencent Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tencent Holdings has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Tencent Holdings go up and down completely randomly.

Pair Corralation between NorAm Drilling and Tencent Holdings

Assuming the 90 days horizon NorAm Drilling AS is expected to under-perform the Tencent Holdings. In addition to that, NorAm Drilling is 1.7 times more volatile than Tencent Holdings. It trades about -0.04 of its total potential returns per unit of risk. Tencent Holdings is currently generating about 0.07 per unit of volatility. If you would invest  4,516  in Tencent Holdings on September 21, 2024 and sell it today you would earn a total of  446.00  from holding Tencent Holdings or generate 9.88% return on investment over 90 days.

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

NorAm Drilling AS  vs.  Tencent Holdings

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Tencent Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tencent Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tencent Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NorAm Drilling and Tencent Holdings

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

The idea behind NorAm Drilling AS and Tencent Holdings 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.