Correlation Between Aker BP and Borr Drilling

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

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

Diversification Opportunities for Aker BP and Borr Drilling

-0.4

Correlation Coefficient

Aker BP  Borr Drilling

Very good diversification

The 3 months correlation between Aker and Borr is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Aker BP ASA and Borr Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Borr Drilling and Aker BP 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 Aker BP ASA are associated (or correlated) with Borr Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Borr Drilling has no effect on the direction of Aker BP i.e., Aker BP and Borr Drilling go up and down completely randomly.

Pair Corralation between Aker BP and Borr Drilling

Assuming the 90 days trading horizon Aker BP ASA is expected to generate 0.51 times more return on investment than Borr Drilling. However, Aker BP ASA is 1.96 times less risky than Borr Drilling. It trades about 0.1 of its potential returns per unit of risk. Borr Drilling is currently generating about -0.07 per unit of risk. If you would invest  21,885  in Aker BP ASA on October 26, 2024 and sell it today you would earn a total of  2,115  from holding Aker BP ASA or generate 9.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	75.0%
Values	Daily Returns

Aker BP ASA  vs.  Borr Drilling

Aker BP ASA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aker BP ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Aker BP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Borr Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Borr Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Aker BP and Borr Drilling

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

The idea behind Aker BP ASA and Borr 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.

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 the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.