Correlation Between High-yield Municipal and Seadrill

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

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

Diversification Opportunities for High-yield Municipal and Seadrill

-0.02

Correlation Coefficient

High-yield Municipal  Seadrill

Good diversification

The 3 months correlation between High-yield and Seadrill is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and High-yield Municipal 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 High Yield Municipal Fund 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 High-yield Municipal i.e., High-yield Municipal and Seadrill go up and down completely randomly.

Pair Corralation between High-yield Municipal and Seadrill

Assuming the 90 days horizon High-yield Municipal is expected to generate 1.14 times less return on investment than Seadrill. But when comparing it to its historical volatility, High Yield Municipal Fund is 8.61 times less risky than Seadrill. It trades about 0.08 of its potential returns per unit of risk. Seadrill Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,075  in Seadrill Limited on September 3, 2024 and sell it today you would lose (11.00) from holding Seadrill Limited or give up 0.27% of portfolio value over 90 days.

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

High Yield Municipal Fund  vs.  Seadrill Limited

High Yield Municipal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High-yield Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Seadrill Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with High-yield Municipal and Seadrill

The main advantage of trading using opposite High-yield Municipal and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High-yield Municipal 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 High Yield Municipal Fund 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..