Correlation Between Cars and Schlumberger

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

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

Diversification Opportunities for Cars and Schlumberger

0.25

Correlation Coefficient

Cars  Schlumberger

Modest diversification

The 3 months correlation between Cars and Schlumberger is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited and Cars 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 Cars Inc are associated (or correlated) with Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger Limited has no effect on the direction of Cars i.e., Cars and Schlumberger go up and down completely randomly.

Pair Corralation between Cars and Schlumberger

Assuming the 90 days horizon Cars is expected to generate 19.96 times less return on investment than Schlumberger. But when comparing it to its historical volatility, Cars Inc is 1.15 times less risky than Schlumberger. It trades about 0.03 of its potential returns per unit of risk. Schlumberger Limited is currently generating about 0.48 of returns per unit of risk over similar time horizon. If you would invest  3,555  in Schlumberger Limited on October 24, 2024 and sell it today you would earn a total of  630.00  from holding Schlumberger Limited or generate 17.72% return on investment over 90 days.

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

Cars Inc  vs.  Schlumberger Limited

Cars Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Schlumberger Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schlumberger Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, Schlumberger may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cars and Schlumberger

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

The idea behind Cars Inc and Schlumberger 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.