Correlation Between Borr Drilling and PetroShale

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

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

Diversification Opportunities for Borr Drilling and PetroShale

0.94

Correlation Coefficient

Borr Drilling  PetroShale

Almost no diversification

The 3 months correlation between Borr and PetroShale is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Borr Drilling and PetroShale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroShale and Borr Drilling 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 Borr Drilling are associated (or correlated) with PetroShale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroShale has no effect on the direction of Borr Drilling i.e., Borr Drilling and PetroShale go up and down completely randomly.

Pair Corralation between Borr Drilling and PetroShale

Given the investment horizon of 90 days Borr Drilling is expected to under-perform the PetroShale. In addition to that, Borr Drilling is 1.51 times more volatile than PetroShale. It trades about -0.34 of its total potential returns per unit of risk. PetroShale is currently generating about -0.17 per unit of volatility. If you would invest  35.00  in PetroShale on September 5, 2024 and sell it today you would lose (5.00) from holding PetroShale or give up 14.29% of portfolio value over 90 days.

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

Borr Drilling  vs.  PetroShale

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. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

PetroShale

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroShale 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 forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Borr Drilling and PetroShale

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

The idea behind Borr Drilling and PetroShale 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.