Correlation Between NorAm Drilling and CVS Health

Can any of the company-specific risk be diversified away by investing in both NorAm Drilling and CVS Health 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 CVS Health 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 CVS Health, you can compare the effects of market volatilities on NorAm Drilling and CVS Health 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 CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorAm Drilling and CVS Health.

Diversification Opportunities for NorAm Drilling and CVS Health

-0.04

Correlation Coefficient

NorAm Drilling  CVS Health

Good diversification

The 3 months correlation between NorAm and CVS is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding NorAm Drilling AS and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of NorAm Drilling i.e., NorAm Drilling and CVS Health go up and down completely randomly.

Pair Corralation between NorAm Drilling and CVS Health

Assuming the 90 days trading horizon NorAm Drilling AS is expected to under-perform the CVS Health. But the stock apears to be less risky and, when comparing its historical volatility, NorAm Drilling AS is 1.29 times less risky than CVS Health. The stock trades about -0.37 of its potential returns per unit of risk. The CVS Health is currently generating about -0.27 of returns per unit of risk over similar time horizon. If you would invest  5,263  in CVS Health on September 20, 2024 and sell it today you would lose (845.00) from holding CVS Health or give up 16.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NorAm Drilling AS  vs.  CVS Health

NorAm Drilling AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NorAm Drilling AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NorAm Drilling is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with NorAm Drilling and CVS Health

The main advantage of trading using opposite NorAm Drilling and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorAm Drilling position performs unexpectedly, CVS Health 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 CVS Health will offset losses from the drop in CVS Health's long position.

The idea behind NorAm Drilling AS and CVS Health 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.