Correlation Between Norwegian Air and Odfjell Drilling
Can any of the company-specific risk be diversified away by investing in both Norwegian Air and Odfjell 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 Norwegian Air and Odfjell Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norwegian Air Shuttle and Odfjell Drilling, you can compare the effects of market volatilities on Norwegian Air and Odfjell 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 Norwegian Air with a short position of Odfjell Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Air and Odfjell Drilling.
Diversification Opportunities for Norwegian Air and Odfjell Drilling
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Norwegian and Odfjell is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Odfjell Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odfjell Drilling and Norwegian Air 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 Norwegian Air Shuttle are associated (or correlated) with Odfjell Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odfjell Drilling has no effect on the direction of Norwegian Air i.e., Norwegian Air and Odfjell Drilling go up and down completely randomly.
Pair Corralation between Norwegian Air and Odfjell Drilling
Assuming the 90 days trading horizon Norwegian Air Shuttle is expected to generate 1.2 times more return on investment than Odfjell Drilling. However, Norwegian Air is 1.2 times more volatile than Odfjell Drilling. It trades about 0.13 of its potential returns per unit of risk. Odfjell Drilling is currently generating about -0.06 per unit of risk. If you would invest 1,060 in Norwegian Air Shuttle on September 1, 2024 and sell it today you would earn a total of 65.00 from holding Norwegian Air Shuttle or generate 6.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norwegian Air Shuttle vs. Odfjell Drilling
Performance |
| Timeline |
| Norwegian Air Shuttle |
| Odfjell Drilling |
Norwegian Air and Odfjell Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norwegian Air and Odfjell Drilling
The main advantage of trading using opposite Norwegian Air and Odfjell Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwegian Air position performs unexpectedly, Odfjell 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 Odfjell Drilling will offset losses from the drop in Odfjell Drilling's long position.| Norwegian Air vs. Danske Bank AS | Norwegian Air vs. Kongsberg Automotive Holding | Norwegian Air vs. Nel ASA |
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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