Correlation Between Digi International and Seadrill

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

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

Diversification Opportunities for Digi International and Seadrill

0.27

Correlation Coefficient

Digi International  Seadrill

Modest diversification

The 3 months correlation between Digi and Seadrill is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Digi International and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and Digi International 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 Digi International 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 Digi International i.e., Digi International and Seadrill go up and down completely randomly.

Pair Corralation between Digi International and Seadrill

Given the investment horizon of 90 days Digi International is expected to generate 1.06 times more return on investment than Seadrill. However, Digi International is 1.06 times more volatile than Seadrill Limited. It trades about 0.05 of its potential returns per unit of risk. Seadrill Limited is currently generating about 0.01 per unit of risk. If you would invest  3,051  in Digi International on October 26, 2024 and sell it today you would earn a total of  151.00  from holding Digi International or generate 4.95% return on investment over 90 days.

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

Digi International  vs.  Seadrill Limited

Digi International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Digi International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting forward indicators, Digi International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Digi International and Seadrill

The main advantage of trading using opposite Digi International and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Digi International 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 Digi International 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.