Correlation Between Schlumberger and China Oilfield

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

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

Diversification Opportunities for Schlumberger and China Oilfield

0.2

Correlation Coefficient

Schlumberger  China Oilfield

Modest diversification

The 3 months correlation between Schlumberger and China is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Schlumberger Limited and China Oilfield Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Oilfield Services and Schlumberger 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 Schlumberger Limited are associated (or correlated) with China Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Oilfield Services has no effect on the direction of Schlumberger i.e., Schlumberger and China Oilfield go up and down completely randomly.

Pair Corralation between Schlumberger and China Oilfield

Assuming the 90 days horizon Schlumberger Limited is expected to under-perform the China Oilfield. But the stock apears to be less risky and, when comparing its historical volatility, Schlumberger Limited is 1.61 times less risky than China Oilfield. The stock trades about -0.02 of its potential returns per unit of risk. The China Oilfield Services is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  68.00  in China Oilfield Services on September 24, 2024 and sell it today you would earn a total of  11.00  from holding China Oilfield Services or generate 16.18% return on investment over 90 days.

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

Schlumberger Limited  vs.  China Oilfield Services

Schlumberger Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Oilfield Services

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Oilfield Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Oilfield may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Schlumberger and China Oilfield

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

The idea behind Schlumberger Limited and China Oilfield Services 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.