Correlation Between Seadrill and Cathedral Energy

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

By analyzing existing cross correlation between Seadrill Limited and Cathedral Energy Services, you can compare the effects of market volatilities on Seadrill and Cathedral Energy 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 Cathedral Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seadrill and Cathedral Energy.

Diversification Opportunities for Seadrill and Cathedral Energy

0.9

Correlation Coefficient

Seadrill  Cathedral Energy

Almost no diversification

The 3 months correlation between Seadrill and Cathedral is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Cathedral Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathedral Energy Services 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 Cathedral Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathedral Energy Services has no effect on the direction of Seadrill i.e., Seadrill and Cathedral Energy go up and down completely randomly.

Pair Corralation between Seadrill and Cathedral Energy

Given the investment horizon of 90 days Seadrill Limited is expected to under-perform the Cathedral Energy. In addition to that, Seadrill is 1.41 times more volatile than Cathedral Energy Services. It trades about -0.25 of its total potential returns per unit of risk. Cathedral Energy Services is currently generating about -0.15 per unit of volatility. If you would invest  432.00  in Cathedral Energy Services on December 30, 2024 and sell it today you would lose (67.00) from holding Cathedral Energy Services or give up 15.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	91.94%
Values	Daily Returns

Seadrill Limited  vs.  Cathedral Energy Services

Seadrill Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Cathedral Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathedral Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Seadrill and Cathedral Energy

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

The idea behind Seadrill Limited and Cathedral Energy 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.