Correlation Between Berkshire Hathaway and Diamond Offshore

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

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

Diversification Opportunities for Berkshire Hathaway and Diamond Offshore

0.0

Correlation Coefficient

Berkshire Hathaway  Diamond Offshore

Pay attention - limited upside

The 3 months correlation between Berkshire and Diamond is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Diamond Offshore Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Offshore Drilling and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Diamond Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Offshore Drilling has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Diamond Offshore go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Diamond Offshore

If you would invest  68,250,000  in Berkshire Hathaway on December 20, 2024 and sell it today you would earn a total of  10,738,000  from holding Berkshire Hathaway or generate 15.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Berkshire Hathaway  vs.  Diamond Offshore Drilling

Berkshire Hathaway

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Berkshire Hathaway sustained solid returns over the last few months and may actually be approaching a breakup point.

Diamond Offshore Drilling

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Offshore Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Diamond Offshore is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Berkshire Hathaway and Diamond Offshore

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

The idea behind Berkshire Hathaway and Diamond Offshore 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.