Correlation Between Frontline and Subsea 7

Can any of the company-specific risk be diversified away by investing in both Frontline and Subsea 7 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 Frontline and Subsea 7 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Frontline and Subsea 7 SA, you can compare the effects of market volatilities on Frontline and Subsea 7 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 Frontline with a short position of Subsea 7. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontline and Subsea 7.

Diversification Opportunities for Frontline and Subsea 7

0.17

Correlation Coefficient

Frontline  Subsea 7

Average diversification

The 3 months correlation between Frontline and Subsea is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Subsea 7 SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Subsea 7 SA and Frontline 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 Frontline are associated (or correlated) with Subsea 7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Subsea 7 SA has no effect on the direction of Frontline i.e., Frontline and Subsea 7 go up and down completely randomly.

Pair Corralation between Frontline and Subsea 7

Assuming the 90 days trading horizon Frontline is expected to under-perform the Subsea 7. In addition to that, Frontline is 1.32 times more volatile than Subsea 7 SA. It trades about -0.15 of its total potential returns per unit of risk. Subsea 7 SA is currently generating about -0.02 per unit of volatility. If you would invest  18,453  in Subsea 7 SA on August 31, 2024 and sell it today you would lose (723.00) from holding Subsea 7 SA or give up 3.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Frontline  vs.  Subsea 7 SA

Frontline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontline has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Subsea 7 SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Subsea 7 SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Subsea 7 is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Frontline and Subsea 7

The main advantage of trading using opposite Frontline and Subsea 7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Frontline position performs unexpectedly, Subsea 7 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 Subsea 7 will offset losses from the drop in Subsea 7's long position.

The idea behind Frontline and Subsea 7 SA 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 CEOs Directory module to screen CEOs from public companies around the world.