Correlation Between Transocean and Major Drilling

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

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

Diversification Opportunities for Transocean and Major Drilling

0.39

Correlation Coefficient

Transocean  Major Drilling

Weak diversification

The 3 months correlation between Transocean and Major is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and Major Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Major Drilling Group and Transocean 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 Transocean are associated (or correlated) with Major Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Major Drilling Group has no effect on the direction of Transocean i.e., Transocean and Major Drilling go up and down completely randomly.

Pair Corralation between Transocean and Major Drilling

Considering the 90-day investment horizon Transocean is expected to under-perform the Major Drilling. In addition to that, Transocean is 1.19 times more volatile than Major Drilling Group. It trades about -0.04 of its total potential returns per unit of risk. Major Drilling Group is currently generating about -0.04 per unit of volatility. If you would invest  577.00  in Major Drilling Group on December 20, 2024 and sell it today you would lose (48.00) from holding Major Drilling Group or give up 8.32% of portfolio value over 90 days.

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

Transocean  vs.  Major Drilling Group

Transocean

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Major Drilling Group

Risk-Adjusted Performance

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 latest fragile performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Transocean and Major Drilling

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

The idea behind Transocean and Major Drilling Group 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.