Correlation Between NorAm Drilling and Honeywell International

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

Diversification Opportunities for NorAm Drilling and Honeywell International

0.83

Correlation Coefficient

NorAm Drilling  Honeywell International

Very poor diversification

The 3 months correlation between NorAm and Honeywell is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International 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 Honeywell International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honeywell International has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and Honeywell International go up and down completely randomly.

Pair Corralation between NorAm Drilling and Honeywell International

Assuming the 90 days trading horizon NorAm Drilling AS is expected to generate 2.4 times more return on investment than Honeywell International. However, NorAm Drilling is 2.4 times more volatile than Honeywell International. It trades about 0.16 of its potential returns per unit of risk. Honeywell International is currently generating about 0.16 per unit of risk. If you would invest  201.00  in NorAm Drilling AS on August 31, 2024 and sell it today you would earn a total of  90.00  from holding NorAm Drilling AS or generate 44.78% return on investment over 90 days.

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

NorAm Drilling AS  vs.  Honeywell International

NorAm Drilling AS

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NorAm Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Honeywell International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Honeywell International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NorAm Drilling and Honeywell International

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

The idea behind NorAm Drilling AS and Honeywell International 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.