Correlation Between NorAm Drilling and SHIN ETSU

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

Diversification Opportunities for NorAm Drilling and SHIN ETSU

-0.36

Correlation Coefficient

NorAm Drilling  SHIN ETSU

Very good diversification

The 3 months correlation between NorAm and SHIN is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and SHIN ETSU CHEMICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHIN ETSU CHEMICAL 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 SHIN ETSU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHIN ETSU CHEMICAL has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and SHIN ETSU go up and down completely randomly.

Pair Corralation between NorAm Drilling and SHIN ETSU

Assuming the 90 days trading horizon NorAm Drilling AS is expected to under-perform the SHIN ETSU. But the stock apears to be less risky and, when comparing its historical volatility, NorAm Drilling AS is 1.27 times less risky than SHIN ETSU. The stock trades about -0.29 of its potential returns per unit of risk. The SHIN ETSU CHEMICAL is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  3,429  in SHIN ETSU CHEMICAL on September 19, 2024 and sell it today you would lose (268.00) from holding SHIN ETSU CHEMICAL or give up 7.82% of portfolio value over 90 days.

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

NorAm Drilling AS  vs.  SHIN ETSU CHEMICAL

NorAm Drilling AS

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, NorAm Drilling may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SHIN ETSU CHEMICAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SHIN ETSU CHEMICAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with NorAm Drilling and SHIN ETSU

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

The idea behind NorAm Drilling AS and SHIN ETSU CHEMICAL 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.