Correlation Between SBM Offshore and Transocean

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

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

Diversification Opportunities for SBM Offshore and Transocean

-0.87

Correlation Coefficient

SBM Offshore  Transocean

Pay attention - limited upside

The 3 months correlation between SBM and Transocean is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean and SBM Offshore 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 SBM Offshore NV are associated (or correlated) with Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of SBM Offshore i.e., SBM Offshore and Transocean go up and down completely randomly.

Pair Corralation between SBM Offshore and Transocean

Assuming the 90 days horizon SBM Offshore NV is expected to generate 1.04 times more return on investment than Transocean. However, SBM Offshore is 1.04 times more volatile than Transocean. It trades about 0.14 of its potential returns per unit of risk. Transocean is currently generating about -0.05 per unit of risk. If you would invest  1,743  in SBM Offshore NV on December 26, 2024 and sell it today you would earn a total of  532.00  from holding SBM Offshore NV or generate 30.52% return on investment over 90 days.

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

SBM Offshore NV  vs.  Transocean

SBM Offshore NV

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, SBM Offshore showed solid returns over the last few months and may actually be approaching a breakup point.

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 weak 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.

Pair Trading with SBM Offshore and Transocean

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

The idea behind SBM Offshore NV and Transocean 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.