Correlation Between Wells Fargo and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both Wells Fargo 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 Wells Fargo and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between West Fraser Timber and NorAm Drilling AS, you can compare the effects of market volatilities on Wells Fargo 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 Wells Fargo with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and NorAm Drilling.
Diversification Opportunities for Wells Fargo and NorAm Drilling
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Wells and NorAm is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding West Fraser Timber 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 Wells Fargo 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 West Fraser Timber 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 Wells Fargo i.e., Wells Fargo and NorAm Drilling go up and down completely randomly.
Pair Corralation between Wells Fargo and NorAm Drilling
Assuming the 90 days horizon West Fraser Timber is expected to generate 0.39 times more return on investment than NorAm Drilling. However, West Fraser Timber is 2.53 times less risky than NorAm Drilling. It trades about 0.07 of its potential returns per unit of risk. NorAm Drilling AS is currently generating about 0.02 per unit of risk. If you would invest 6,819 in West Fraser Timber on September 4, 2024 and sell it today you would earn a total of 2,111 from holding West Fraser Timber or generate 30.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
West Fraser Timber vs. NorAm Drilling AS
Performance |
| Timeline |
| West Fraser Timber |
| NorAm Drilling AS |
Wells Fargo and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wells Fargo and NorAm Drilling
The main advantage of trading using opposite Wells Fargo and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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.| Wells Fargo vs. Superior Plus Corp | Wells Fargo vs. NMI Holdings | Wells Fargo vs. Origin Agritech | Wells Fargo vs. SIVERS SEMICONDUCTORS AB |
| NorAm Drilling vs. AUTO TRADER ADR | NorAm Drilling vs. IDP EDUCATION LTD | NorAm Drilling vs. Perdoceo Education | NorAm Drilling vs. Strategic Education |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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