Correlation Between Philip Morris and Seadrill

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

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

Diversification Opportunities for Philip Morris and Seadrill

0.42

Correlation Coefficient

Philip Morris  Seadrill

Very weak diversification

The 3 months correlation between Philip and Seadrill is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Philip Morris International and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and Philip Morris 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 Philip Morris International 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 Philip Morris i.e., Philip Morris and Seadrill go up and down completely randomly.

Pair Corralation between Philip Morris and Seadrill

Allowing for the 90-day total investment horizon Philip Morris International is expected to under-perform the Seadrill. But the stock apears to be less risky and, when comparing its historical volatility, Philip Morris International is 1.68 times less risky than Seadrill. The stock trades about -0.03 of its potential returns per unit of risk. The Seadrill Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,567  in Seadrill Limited on October 23, 2024 and sell it today you would earn a total of  185.00  from holding Seadrill Limited or generate 5.19% return on investment over 90 days.

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

Philip Morris International  vs.  Seadrill Limited

Philip Morris Intern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Philip Morris International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Seadrill Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Seadrill Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Seadrill may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Philip Morris and Seadrill

The main advantage of trading using opposite Philip Morris and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philip Morris 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 Philip Morris International 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.