Correlation Between China Oilfield and Schlumberger

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

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

Diversification Opportunities for China Oilfield and Schlumberger

0.2

Correlation Coefficient

China Oilfield  Schlumberger

Modest diversification

The 3 months correlation between China and Schlumberger is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Oilfield Services and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited and China Oilfield 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 China Oilfield Services 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 China Oilfield i.e., China Oilfield and Schlumberger go up and down completely randomly.

Pair Corralation between China Oilfield and Schlumberger

Assuming the 90 days horizon China Oilfield Services is expected to generate 1.66 times more return on investment than Schlumberger. However, China Oilfield is 1.66 times more volatile than Schlumberger Limited. It trades about -0.01 of its potential returns per unit of risk. Schlumberger Limited is currently generating about -0.07 per unit of risk. If you would invest  88.00  in China Oilfield Services on September 25, 2024 and sell it today you would lose (8.00) from holding China Oilfield Services or give up 9.09% of portfolio value over 90 days.

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

China Oilfield Services  vs.  Schlumberger Limited

China Oilfield Services

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Oilfield Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, China Oilfield is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Schlumberger Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Schlumberger is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Oilfield and Schlumberger

The main advantage of trading using opposite China Oilfield and Schlumberger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Oilfield 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 China Oilfield Services 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.