Correlation Between BKV and Seadrill

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

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

Diversification Opportunities for BKV and Seadrill

0.25

Correlation Coefficient

BKV  Seadrill

Modest diversification

The 3 months correlation between BKV and Seadrill is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding BKV Corp. and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and BKV 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 BKV Corporation 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 BKV i.e., BKV and Seadrill go up and down completely randomly.

Pair Corralation between BKV and Seadrill

Considering the 90-day investment horizon BKV Corporation is expected to generate 0.75 times more return on investment than Seadrill. However, BKV Corporation is 1.34 times less risky than Seadrill. It trades about 0.18 of its potential returns per unit of risk. Seadrill Limited is currently generating about -0.08 per unit of risk. If you would invest  1,800  in BKV Corporation on September 22, 2024 and sell it today you would earn a total of  369.00  from holding BKV Corporation or generate 20.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	48.03%
Values	Daily Returns

BKV Corp.  vs.  Seadrill Limited

BKV Corporation

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BKV Corporation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, BKV showed solid returns over the last few months and may actually be approaching a breakup point.

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 latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with BKV and Seadrill

The main advantage of trading using opposite BKV and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BKV 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 BKV Corporation 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.