Correlation Between Shelf Drilling and Transocean

Can any of the company-specific risk be diversified away by investing in both Shelf Drilling and Transocean 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 Shelf Drilling and Transocean into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shelf Drilling and Transocean, you can compare the effects of market volatilities on Shelf Drilling and Transocean 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 Shelf Drilling with a short position of Transocean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shelf Drilling and Transocean.

Diversification Opportunities for Shelf Drilling and Transocean

-0.61

Correlation Coefficient

Shelf Drilling  Transocean

Excellent diversification

The 3 months correlation between Shelf and Transocean is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Shelf Drilling and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean and Shelf 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 Shelf Drilling are associated (or correlated) with Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Shelf Drilling i.e., Shelf Drilling and Transocean go up and down completely randomly.

Pair Corralation between Shelf Drilling and Transocean

Assuming the 90 days horizon Shelf Drilling is expected to generate 1.21 times more return on investment than Transocean. However, Shelf Drilling is 1.21 times more volatile than Transocean. It trades about 0.15 of its potential returns per unit of risk. Transocean is currently generating about 0.05 per unit of risk. If you would invest  180.00  in Shelf Drilling on February 16, 2024 and sell it today you would earn a total of  20.00  from holding Shelf Drilling or generate 11.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Shelf Drilling  vs.  Transocean

Shelf Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shelf Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Transocean

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transocean are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward indicators, Transocean reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shelf Drilling and Transocean

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

The idea behind Shelf Drilling and Transocean 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.