Correlation Between Precision Drilling and Seadrill

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

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

Diversification Opportunities for Precision Drilling and Seadrill

0.83

Correlation Coefficient

Precision Drilling  Seadrill

Very poor diversification

The 3 months correlation between Precision and Seadrill is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Precision Drilling and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and Precision 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 Precision Drilling are associated (or correlated) with Seadrill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seadrill Limited has no effect on the direction of Precision Drilling i.e., Precision Drilling and Seadrill go up and down completely randomly.

Pair Corralation between Precision Drilling and Seadrill

Considering the 90-day investment horizon Precision Drilling is expected to generate 1.37 times less return on investment than Seadrill. In addition to that, Precision Drilling is 1.23 times more volatile than Seadrill Limited. It trades about 0.15 of its total potential returns per unit of risk. Seadrill Limited is currently generating about 0.25 per unit of volatility. If you would invest  4,128  in Seadrill Limited on January 20, 2024 and sell it today you would earn a total of  764.00  from holding Seadrill Limited or generate 18.51% return on investment over 90 days.

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

Precision Drilling  vs.  Seadrill Limited

Precision Drilling

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precision Drilling are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Precision Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Seadrill Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Seadrill Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Seadrill may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Precision Drilling and Seadrill

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

The idea behind Precision Drilling and Seadrill Limited 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.