Correlation Between Transocean and Pembina Pipeline

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

By analyzing existing cross correlation between Transocean and Pembina Pipeline, you can compare the effects of market volatilities on Transocean and Pembina Pipeline 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 Pembina Pipeline. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transocean and Pembina Pipeline.

Diversification Opportunities for Transocean and Pembina Pipeline

0.51

Correlation Coefficient

Transocean  Pembina Pipeline

Very weak diversification

The 3 months correlation between Transocean and Pembina is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and Pembina Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pembina Pipeline 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 Pembina Pipeline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pembina Pipeline has no effect on the direction of Transocean i.e., Transocean and Pembina Pipeline go up and down completely randomly.

Pair Corralation between Transocean and Pembina Pipeline

Considering the 90-day investment horizon Transocean is expected to under-perform the Pembina Pipeline. In addition to that, Transocean is 41.14 times more volatile than Pembina Pipeline. It trades about -0.01 of its total potential returns per unit of risk. Pembina Pipeline is currently generating about 0.23 per unit of volatility. If you would invest  1,579  in Pembina Pipeline on October 9, 2024 and sell it today you would earn a total of  4.00  from holding Pembina Pipeline or generate 0.25% return on investment over 90 days.

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

Transocean  vs.  Pembina Pipeline

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Transocean is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pembina Pipeline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pembina Pipeline has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Pembina Pipeline is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Transocean and Pembina Pipeline

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

The idea behind Transocean and Pembina Pipeline 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.