Correlation Between Subsea 7 and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both Subsea 7 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 Subsea 7 and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Subsea 7 SA and NorAm Drilling AS, you can compare the effects of market volatilities on Subsea 7 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 Subsea 7 with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Subsea 7 and NorAm Drilling.
Diversification Opportunities for Subsea 7 and NorAm Drilling
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Subsea and NorAm is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Subsea 7 SA 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 Subsea 7 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 Subsea 7 SA 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 Subsea 7 i.e., Subsea 7 and NorAm Drilling go up and down completely randomly.
Pair Corralation between Subsea 7 and NorAm Drilling
Assuming the 90 days trading horizon Subsea 7 SA is expected to generate 1.43 times more return on investment than NorAm Drilling. However, Subsea 7 is 1.43 times more volatile than NorAm Drilling AS. It trades about 0.2 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about -0.21 per unit of risk. If you would invest 17,275 in Subsea 7 SA on August 25, 2024 and sell it today you would earn a total of 1,235 from holding Subsea 7 SA or generate 7.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Subsea 7 SA vs. NorAm Drilling AS
Performance |
| Timeline |
| Subsea 7 SA |
| NorAm Drilling AS |
Subsea 7 and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Subsea 7 and NorAm Drilling
The main advantage of trading using opposite Subsea 7 and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subsea 7 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 Subsea 7 SA 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.| 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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