Correlation Between Aristocrat Leisure and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both Aristocrat Leisure 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 Aristocrat Leisure and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aristocrat Leisure Limited and NorAm Drilling AS, you can compare the effects of market volatilities on Aristocrat Leisure 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 Aristocrat Leisure with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristocrat Leisure and NorAm Drilling.
Diversification Opportunities for Aristocrat Leisure and NorAm Drilling
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Aristocrat and NorAm is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure Limited 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 Aristocrat Leisure 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 Aristocrat Leisure Limited 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 Aristocrat Leisure i.e., Aristocrat Leisure and NorAm Drilling go up and down completely randomly.
Pair Corralation between Aristocrat Leisure and NorAm Drilling
Assuming the 90 days horizon Aristocrat Leisure is expected to generate 6.36 times less return on investment than NorAm Drilling. But when comparing it to its historical volatility, Aristocrat Leisure Limited is 4.21 times less risky than NorAm Drilling. It trades about 0.29 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest 220.00 in NorAm Drilling AS on October 21, 2024 and sell it today you would earn a total of 84.00 from holding NorAm Drilling AS or generate 38.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aristocrat Leisure Limited vs. NorAm Drilling AS
Performance |
| Timeline |
| Aristocrat Leisure |
| NorAm Drilling AS |
Aristocrat Leisure and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aristocrat Leisure and NorAm Drilling
The main advantage of trading using opposite Aristocrat Leisure and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aristocrat Leisure 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.| Aristocrat Leisure vs. Nintendo Co | Aristocrat Leisure vs. Nintendo Co | Aristocrat Leisure vs. Sea Limited | Aristocrat Leisure vs. Electronic Arts |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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