Correlation Between BHP Group and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both BHP Group 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 BHP Group and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BHP Group Limited and NorAm Drilling AS, you can compare the effects of market volatilities on BHP Group 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 BHP Group with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and NorAm Drilling.
Diversification Opportunities for BHP Group and NorAm Drilling
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between BHP and NorAm is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group 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 BHP Group 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 BHP Group 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 BHP Group i.e., BHP Group and NorAm Drilling go up and down completely randomly.
Pair Corralation between BHP Group and NorAm Drilling
Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the NorAm Drilling. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 3.23 times less risky than NorAm Drilling. The stock trades about -0.14 of its potential returns per unit of risk. The NorAm Drilling AS is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 302.00 in NorAm Drilling AS on August 29, 2024 and sell it today you would lose (4.00) from holding NorAm Drilling AS or give up 1.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BHP Group Limited vs. NorAm Drilling AS
Performance |
| Timeline |
| BHP Group Limited |
| NorAm Drilling AS |
BHP Group and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BHP Group and NorAm Drilling
The main advantage of trading using opposite BHP Group and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group 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.| BHP Group vs. Superior Plus Corp | BHP Group vs. NMI Holdings | BHP Group vs. Origin Agritech | BHP Group vs. SIVERS SEMICONDUCTORS AB |
| NorAm Drilling vs. Air Transport Services | NorAm Drilling vs. Pembina Pipeline Corp | NorAm Drilling vs. NAKED WINES PLC | NorAm Drilling vs. Fukuyama Transporting Co |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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