Correlation Between River Tech and Seadrill

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

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

Diversification Opportunities for River Tech and Seadrill

-0.65

Correlation Coefficient

River Tech  Seadrill

Excellent diversification

The 3 months correlation between River and Seadrill is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding River Tech plc and Seadrill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill and River Tech 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 River Tech plc 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 has no effect on the direction of River Tech i.e., River Tech and Seadrill go up and down completely randomly.

Pair Corralation between River Tech and Seadrill

Assuming the 90 days trading horizon River Tech is expected to generate 6.04 times less return on investment than Seadrill. In addition to that, River Tech is 2.68 times more volatile than Seadrill. It trades about 0.01 of its total potential returns per unit of risk. Seadrill is currently generating about 0.17 per unit of volatility. If you would invest  45,150  in Seadrill on February 28, 2024 and sell it today you would earn a total of  8,550  from holding Seadrill or generate 18.94% return on investment over 90 days.

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

River Tech plc  vs.  Seadrill

River Tech plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days River Tech plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, River Tech is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Seadrill

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Seadrill are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Seadrill disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with River Tech and Seadrill

The main advantage of trading using opposite River Tech and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if River Tech 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 River Tech plc and Seadrill 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.