Correlation Between BW Offshore and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both BW Offshore 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 BW Offshore and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BW Offshore and NorAm Drilling AS, you can compare the effects of market volatilities on BW Offshore 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 BW Offshore with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and NorAm Drilling.
Diversification Opportunities for BW Offshore and NorAm Drilling
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BWO and NorAm is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore 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 BW Offshore 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 BW Offshore 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 BW Offshore i.e., BW Offshore and NorAm Drilling go up and down completely randomly.
Pair Corralation between BW Offshore and NorAm Drilling
Assuming the 90 days trading horizon BW Offshore is expected to generate 2.45 times more return on investment than NorAm Drilling. However, BW Offshore is 2.45 times more volatile than NorAm Drilling AS. It trades about -0.04 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about -0.16 per unit of risk. If you would invest 2,907 in BW Offshore on September 1, 2024 and sell it today you would lose (117.00) from holding BW Offshore or give up 4.02% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BW Offshore vs. NorAm Drilling AS
Performance |
| Timeline |
| BW Offshore |
| NorAm Drilling AS |
BW Offshore and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BW Offshore and NorAm Drilling
The main advantage of trading using opposite BW Offshore and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Offshore 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.The idea behind BW Offshore and NorAm Drilling AS 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.| NorAm Drilling vs. Sparebank 1 SMN | NorAm Drilling vs. Jaeren Sparebank | NorAm Drilling vs. Eidesvik Offshore ASA | NorAm Drilling vs. Helgeland Sparebank |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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