Correlation Between Marine Products and Seadrill

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

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

Diversification Opportunities for Marine Products and Seadrill

0.4

Correlation Coefficient

Marine Products  Seadrill

Very weak diversification

The 3 months correlation between Marine and Seadrill is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Marine Products and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and Marine Products 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 Marine Products 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 Marine Products i.e., Marine Products and Seadrill go up and down completely randomly.

Pair Corralation between Marine Products and Seadrill

Considering the 90-day investment horizon Marine Products is expected to generate 0.83 times more return on investment than Seadrill. However, Marine Products is 1.21 times less risky than Seadrill. It trades about -0.02 of its potential returns per unit of risk. Seadrill Limited is currently generating about -0.2 per unit of risk. If you would invest  972.00  in Marine Products on September 18, 2024 and sell it today you would lose (9.00) from holding Marine Products or give up 0.93% of portfolio value over 90 days.

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

Marine Products  vs.  Seadrill Limited

Marine Products

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Marine Products are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Marine Products is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Marine Products and Seadrill

The main advantage of trading using opposite Marine Products and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marine Products 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 Marine Products 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.