Correlation Between Seadrill and Eni SPA

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Can any of the company-specific risk be diversified away by investing in both Seadrill and Eni SPA 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 Eni SPA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Seadrill Limited and Eni SpA ADR, you can compare the effects of market volatilities on Seadrill and Eni SPA 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 Eni SPA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seadrill and Eni SPA.

Diversification Opportunities for Seadrill and Eni SPA

SeadrillEniDiversified AwaySeadrillEniDiversified Away100%
0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Seadrill and Eni is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Eni SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eni SpA ADR 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 Eni SPA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eni SpA ADR has no effect on the direction of Seadrill i.e., Seadrill and Eni SPA go up and down completely randomly.

Pair Corralation between Seadrill and Eni SPA

Given the investment horizon of 90 days Seadrill Limited is expected to generate 2.46 times more return on investment than Eni SPA. However, Seadrill is 2.46 times more volatile than Eni SpA ADR. It trades about 0.01 of its potential returns per unit of risk. Eni SpA ADR is currently generating about -0.12 per unit of risk. If you would invest  3,784  in Seadrill Limited on October 9, 2024 and sell it today you would lose (2.00) from holding Seadrill Limited or give up 0.05% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Seadrill Limited  vs.  Eni SpA ADR

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -15-10-505
JavaScript chart by amCharts 3.21.15SDRL E
       Timeline  
Seadrill Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan3536373839404142
Eni SpA ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Eni SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan262728293031

Seadrill and Eni SPA Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.0-3.0-1.99-0.99-0.01640.951.942.923.94.89 0.050.100.150.200.250.300.35
JavaScript chart by amCharts 3.21.15SDRL E
       Returns  

Pair Trading with Seadrill and Eni SPA

The main advantage of trading using opposite Seadrill and Eni SPA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seadrill position performs unexpectedly, Eni SPA 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 Eni SPA will offset losses from the drop in Eni SPA's long position.
The idea behind Seadrill Limited and Eni SpA ADR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.

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