Correlation Between FRESENIUS SECO and NorAm Drilling

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Can any of the company-specific risk be diversified away by investing in both FRESENIUS SECO 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 FRESENIUS SECO and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FRESENIUS SECO ADR and NorAm Drilling AS, you can compare the effects of market volatilities on FRESENIUS SECO 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 FRESENIUS SECO with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of FRESENIUS SECO and NorAm Drilling.

Diversification Opportunities for FRESENIUS SECO and NorAm Drilling

0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between FRESENIUS and NorAm is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding FRESENIUS SECO ADR 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 FRESENIUS SECO 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 FRESENIUS SECO ADR 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 FRESENIUS SECO i.e., FRESENIUS SECO and NorAm Drilling go up and down completely randomly.

Pair Corralation between FRESENIUS SECO and NorAm Drilling

Assuming the 90 days trading horizon FRESENIUS SECO is expected to generate 1.19 times less return on investment than NorAm Drilling. But when comparing it to its historical volatility, FRESENIUS SECO ADR is 2.67 times less risky than NorAm Drilling. It trades about 0.04 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  304.00  in NorAm Drilling AS on September 4, 2024 and sell it today you would lose (14.00) from holding NorAm Drilling AS or give up 4.61% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy99.6%
ValuesDaily Returns

FRESENIUS SECO ADR  vs.  NorAm Drilling AS

 Performance 
       Timeline  
FRESENIUS SECO ADR 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in FRESENIUS SECO ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, FRESENIUS SECO is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
NorAm Drilling AS 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in NorAm Drilling AS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NorAm Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

FRESENIUS SECO and NorAm Drilling Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with FRESENIUS SECO and NorAm Drilling

The main advantage of trading using opposite FRESENIUS SECO and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FRESENIUS SECO 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 FRESENIUS SECO ADR 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.
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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