Correlation Between Major Drilling and Seadrill

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

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

Diversification Opportunities for Major Drilling and Seadrill

0.37

Correlation Coefficient

Major Drilling  Seadrill

Weak diversification

The 3 months correlation between Major and Seadrill is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling Group and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and Major Drilling 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 Major Drilling Group 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 Major Drilling i.e., Major Drilling and Seadrill go up and down completely randomly.

Pair Corralation between Major Drilling and Seadrill

Assuming the 90 days horizon Major Drilling Group is expected to under-perform the Seadrill. But the pink sheet apears to be less risky and, when comparing its historical volatility, Major Drilling Group is 1.17 times less risky than Seadrill. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Seadrill Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,875  in Seadrill Limited on October 8, 2024 and sell it today you would lose (1.00) from holding Seadrill Limited or give up 0.03% of portfolio value over 90 days.

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

Major Drilling Group  vs.  Seadrill Limited

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Major Drilling is not utilizing all of its potentials. The current 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 Major Drilling and Seadrill

The main advantage of trading using opposite Major Drilling and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling 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 Major Drilling Group 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 Global Correlations module to find global opportunities by holding instruments from different markets.