Correlation Between Eni SPA and Seadrill

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

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

Diversification Opportunities for Eni SPA and Seadrill

0.2

Correlation Coefficient

Eni SPA  Seadrill

Modest diversification

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

Pair Corralation between Eni SPA and Seadrill

Taking into account the 90-day investment horizon Eni SpA ADR is expected to under-perform the Seadrill. But the stock apears to be less risky and, when comparing its historical volatility, Eni SpA ADR is 1.93 times less risky than Seadrill. The stock trades about -0.03 of its potential returns per unit of risk. The Seadrill Limited is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,985  in Seadrill Limited on September 21, 2024 and sell it today you would lose (353.00) from holding Seadrill Limited or give up 8.86% of portfolio value over 90 days.

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

Eni SpA ADR  vs.  Seadrill Limited

Eni SpA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eni SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Eni SPA and Seadrill

The main advantage of trading using opposite Eni SPA and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eni SPA 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 Eni SpA ADR 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.