Correlation Between Adams Resources and Diamond Offshore

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

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

Diversification Opportunities for Adams Resources and Diamond Offshore

0.67

Correlation Coefficient

Adams Resources Diamond Offshore

Poor diversification

The 3 months correlation between Adams and Diamond is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Adams Resources Energy and Diamond Offshore Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Offshore Drilling and Adams Resources 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 Adams Resources Energy are associated (or correlated) with Diamond Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Offshore Drilling has no effect on the direction of Adams Resources i.e., Adams Resources and Diamond Offshore go up and down completely randomly.

Pair Corralation between Adams Resources and Diamond Offshore

Allowing for the 90-day total investment horizon Adams Resources Energy is expected to under-perform the Diamond Offshore. But the stock apears to be less risky and, when comparing its historical volatility, Adams Resources Energy is 1.18 times less risky than Diamond Offshore. The stock trades about -0.4 of its potential returns per unit of risk. The Diamond Offshore Drilling is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,250  in Diamond Offshore Drilling on January 1, 2023 and sell it today you would lose (46.00)  from holding Diamond Offshore Drilling or give up 3.68% of portfolio value over 90 days.

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

Adams Resources Energy  vs.  Diamond Offshore Drilling

Adams Resources Energy

Adams Performance

1 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Resources Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Adams Resources is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Diamond Offshore Drilling

Diamond Performance

8 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Offshore Drilling are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Diamond Offshore displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Adams Resources and Diamond Offshore

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

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The idea behind Adams Resources Energy and Diamond Offshore Drilling 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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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.