Correlation Between Weatherford International and Tenaris SA

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

By analyzing existing cross correlation between Weatherford International PLC and Tenaris SA ADR, you can compare the effects of market volatilities on Weatherford International and Tenaris SA 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 Weatherford International with a short position of Tenaris SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weatherford International and Tenaris SA.

Diversification Opportunities for Weatherford International and Tenaris SA

0.87

Correlation Coefficient

Weatherford International  Tenaris SA

Very poor diversification

The 3 months correlation between Weatherford and Tenaris is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Weatherford International PLC and Tenaris SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA ADR and Weatherford International 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 Weatherford International PLC are associated (or correlated) with Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA ADR has no effect on the direction of Weatherford International i.e., Weatherford International and Tenaris SA go up and down completely randomly.

Pair Corralation between Weatherford International and Tenaris SA

Given the investment horizon of 90 days Weatherford International PLC is expected to generate 1.25 times more return on investment than Tenaris SA. However, Weatherford International is 1.25 times more volatile than Tenaris SA ADR. It trades about 0.19 of its potential returns per unit of risk. Tenaris SA ADR is currently generating about -0.36 per unit of risk. If you would invest  11,833  in Weatherford International PLC on January 31, 2024 and sell it today you would earn a total of  1,092  from holding Weatherford International PLC or generate 9.23% return on investment over 90 days.

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

Weatherford International PLC  vs.  Tenaris SA ADR

Weatherford International

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Weatherford International PLC are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Weatherford International exhibited solid returns over the last few months and may actually be approaching a breakup point.

Tenaris SA ADR

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Weatherford International and Tenaris SA

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

The idea behind Weatherford International PLC and Tenaris SA ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.