Correlation Between Magna International and NorAm Drilling

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

Diversification Opportunities for Magna International and NorAm Drilling

-0.21
  Correlation Coefficient

Very good diversification

The 3 months correlation between Magna and NorAm is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Magna International 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 Magna International 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 Magna International 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 Magna International i.e., Magna International and NorAm Drilling go up and down completely randomly.

Pair Corralation between Magna International and NorAm Drilling

Assuming the 90 days horizon Magna International is expected to generate 0.6 times more return on investment than NorAm Drilling. However, Magna International is 1.67 times less risky than NorAm Drilling. It trades about 0.16 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  3,804  in Magna International on August 31, 2024 and sell it today you would earn a total of  386.00  from holding Magna International or generate 10.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Magna International  vs.  NorAm Drilling AS

 Performance 
       Timeline  
Magna International 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Magna International reported solid returns over the last few months and may actually be approaching a breakup point.
NorAm Drilling AS 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days NorAm Drilling AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NorAm Drilling is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Magna International and NorAm Drilling Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Magna International and NorAm Drilling

The main advantage of trading using opposite Magna International and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magna International 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 Magna International 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.
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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