Correlation Between Prairie Provident and Seadrill

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

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

Diversification Opportunities for Prairie Provident and Seadrill

0.16

Correlation Coefficient

Prairie Provident  Seadrill

Average diversification

The 3 months correlation between Prairie and Seadrill is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Prairie Provident Resources and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and Prairie Provident 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 Prairie Provident Resources 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 Prairie Provident i.e., Prairie Provident and Seadrill go up and down completely randomly.

Pair Corralation between Prairie Provident and Seadrill

Assuming the 90 days horizon Prairie Provident Resources is expected to generate 14.71 times more return on investment than Seadrill. However, Prairie Provident is 14.71 times more volatile than Seadrill Limited. It trades about 0.13 of its potential returns per unit of risk. Seadrill Limited is currently generating about -0.25 per unit of risk. If you would invest  1.06  in Prairie Provident Resources on December 30, 2024 and sell it today you would earn a total of  1.46  from holding Prairie Provident Resources or generate 137.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Prairie Provident Resources  vs.  Seadrill Limited

Prairie Provident

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prairie Provident reported solid returns over the last few months and may actually be approaching a breakup point.

Seadrill Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Prairie Provident and Seadrill

The main advantage of trading using opposite Prairie Provident and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prairie Provident 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 Prairie Provident Resources 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.