Correlation Between GMO Internet and Seadrill

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

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

Diversification Opportunities for GMO Internet and Seadrill

-0.17

Correlation Coefficient

GMO Internet  Seadrill

Good diversification

The 3 months correlation between GMO and Seadrill is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and GMO Internet 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 GMO Internet 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 GMO Internet i.e., GMO Internet and Seadrill go up and down completely randomly.

Pair Corralation between GMO Internet and Seadrill

Assuming the 90 days horizon GMO Internet is expected to under-perform the Seadrill. But the pink sheet apears to be less risky and, when comparing its historical volatility, GMO Internet is 1.21 times less risky than Seadrill. The pink sheet trades about -0.16 of its potential returns per unit of risk. The Seadrill Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,876  in Seadrill Limited on October 11, 2024 and sell it today you would lose (96.00) from holding Seadrill Limited or give up 2.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

GMO Internet  vs.  Seadrill Limited

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 GMO Internet and Seadrill

The main advantage of trading using opposite GMO Internet and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMO Internet 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 GMO Internet 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.