Correlation Between Transocean and Vantage Drilling

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

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

Diversification Opportunities for Transocean and Vantage Drilling

0.52

Correlation Coefficient

Transocean  Vantage Drilling

Very weak diversification

The 3 months correlation between Transocean and Vantage is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and Vantage Drilling International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vantage Drilling Int 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 Vantage Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vantage Drilling Int has no effect on the direction of Transocean i.e., Transocean and Vantage Drilling go up and down completely randomly.

Pair Corralation between Transocean and Vantage Drilling

Considering the 90-day investment horizon Transocean is expected to under-perform the Vantage Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Transocean is 2.96 times less risky than Vantage Drilling. The stock trades about -0.02 of its potential returns per unit of risk. The Vantage Drilling International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,300  in Vantage Drilling International on October 9, 2024 and sell it today you would earn a total of  250.00  from holding Vantage Drilling International or generate 10.87% return on investment over 90 days.

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

Transocean  vs.  Vantage Drilling International

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Vantage Drilling Int

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vantage Drilling International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vantage Drilling 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 Vantage Drilling

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

The idea behind Transocean and Vantage Drilling International 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.