Correlation Between Odfjell Drilling and Solstad Offsho

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

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

Diversification Opportunities for Odfjell Drilling and Solstad Offsho

-0.03

Correlation Coefficient

Odfjell Drilling  Solstad Offsho

Good diversification

The 3 months correlation between Odfjell and Solstad is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Odfjell Drilling and Solstad Offsho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solstad Offsho and Odfjell 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 Odfjell Drilling are associated (or correlated) with Solstad Offsho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solstad Offsho has no effect on the direction of Odfjell Drilling i.e., Odfjell Drilling and Solstad Offsho go up and down completely randomly.

Pair Corralation between Odfjell Drilling and Solstad Offsho

Assuming the 90 days trading horizon Odfjell Drilling is expected to generate 0.91 times more return on investment than Solstad Offsho. However, Odfjell Drilling is 1.1 times less risky than Solstad Offsho. It trades about 0.24 of its potential returns per unit of risk. Solstad Offsho is currently generating about -0.09 per unit of risk. If you would invest  4,870  in Odfjell Drilling on November 29, 2024 and sell it today you would earn a total of  1,470  from holding Odfjell Drilling or generate 30.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Odfjell Drilling  vs.  Solstad Offsho

Odfjell Drilling

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Odfjell Drilling are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Odfjell Drilling disclosed solid returns over the last few months and may actually be approaching a breakup point.

Solstad Offsho

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solstad Offsho has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential 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 Odfjell Drilling and Solstad Offsho

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

The idea behind Odfjell Drilling and Solstad Offsho 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.