Correlation Between NorAm Drilling and BW Offshore
Can any of the company-specific risk be diversified away by investing in both NorAm Drilling and BW Offshore 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 NorAm Drilling and BW Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NorAm Drilling AS and BW Offshore, you can compare the effects of market volatilities on NorAm Drilling and BW Offshore 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 NorAm Drilling with a short position of BW Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorAm Drilling and BW Offshore.
Diversification Opportunities for NorAm Drilling and BW Offshore
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between NorAm and BWO is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore and NorAm Drilling 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 NorAm Drilling AS are associated (or correlated) with BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and BW Offshore go up and down completely randomly.
Pair Corralation between NorAm Drilling and BW Offshore
Assuming the 90 days trading horizon NorAm Drilling AS is expected to under-perform the BW Offshore. But the stock apears to be less risky and, when comparing its historical volatility, NorAm Drilling AS is 1.32 times less risky than BW Offshore. The stock trades about -0.07 of its potential returns per unit of risk. The BW Offshore is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 2,888 in BW Offshore on August 29, 2024 and sell it today you would lose (153.00) from holding BW Offshore or give up 5.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NorAm Drilling AS vs. BW Offshore
Performance |
| Timeline |
| NorAm Drilling AS |
| BW Offshore |
NorAm Drilling and BW Offshore Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NorAm Drilling and BW Offshore
The main advantage of trading using opposite NorAm Drilling and BW Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorAm Drilling position performs unexpectedly, BW Offshore 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 BW Offshore will offset losses from the drop in BW Offshore's long position.| NorAm Drilling vs. Subsea 7 SA | NorAm Drilling vs. Aker ASA | NorAm Drilling vs. Dno ASA | NorAm Drilling vs. Aker Carbon Capture |
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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