Correlation Between Seadrill and Africa Oil

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

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

Diversification Opportunities for Seadrill and Africa Oil

0.4

Correlation Coefficient

Seadrill  Africa Oil

Very weak diversification

The 3 months correlation between Seadrill and Africa is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Africa Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Africa Oil Corp and Seadrill 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 Seadrill Limited are associated (or correlated) with Africa Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Africa Oil Corp has no effect on the direction of Seadrill i.e., Seadrill and Africa Oil go up and down completely randomly.

Pair Corralation between Seadrill and Africa Oil

Given the investment horizon of 90 days Seadrill Limited is expected to generate 0.92 times more return on investment than Africa Oil. However, Seadrill Limited is 1.08 times less risky than Africa Oil. It trades about 0.01 of its potential returns per unit of risk. Africa Oil Corp is currently generating about 0.0 per unit of risk. If you would invest  3,858  in Seadrill Limited on September 12, 2024 and sell it today you would earn a total of  18.00  from holding Seadrill Limited or generate 0.47% return on investment over 90 days.

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

Seadrill Limited  vs.  Africa Oil Corp

Seadrill Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seadrill Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Africa Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Seadrill and Africa Oil

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

The idea behind Seadrill Limited and Africa Oil Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.