Correlation Between Li Ning and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both Li Ning 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 Li Ning and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Li Ning Company and NorAm Drilling AS, you can compare the effects of market volatilities on Li Ning 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 Li Ning with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Li Ning and NorAm Drilling.
Diversification Opportunities for Li Ning and NorAm Drilling
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between LNLB and NorAm is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Li Ning Company 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 Li Ning 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 Li Ning Company 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 Li Ning i.e., Li Ning and NorAm Drilling go up and down completely randomly.
Pair Corralation between Li Ning and NorAm Drilling
Assuming the 90 days trading horizon Li Ning Company is expected to generate 0.6 times more return on investment than NorAm Drilling. However, Li Ning Company is 1.66 times less risky than NorAm Drilling. It trades about 0.06 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about -0.03 per unit of risk. If you would invest 186.00 in Li Ning Company on August 31, 2024 and sell it today you would earn a total of 6.00 from holding Li Ning Company or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Li Ning Company vs. NorAm Drilling AS
Performance |
| Timeline |
| Li Ning Company |
| NorAm Drilling AS |
Li Ning and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Li Ning and NorAm Drilling
The main advantage of trading using opposite Li Ning and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Ning 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.| Li Ning vs. FANDIFI TECHNOLOGY P | Li Ning vs. Big 5 Sporting | Li Ning vs. Air Transport Services | Li Ning vs. Vishay Intertechnology |
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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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