Correlation Between Seadrill and Prospera Energy

Can any of the company-specific risk be diversified away by investing in both Seadrill and Prospera 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 Prospera 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 Prospera Energy, you can compare the effects of market volatilities on Seadrill and Prospera 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 Prospera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seadrill and Prospera Energy.

Diversification Opportunities for Seadrill and Prospera Energy

0.09

Correlation Coefficient

Seadrill  Prospera Energy

Significant diversification

The 3 months correlation between Seadrill and Prospera is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Prospera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospera Energy 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 Prospera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prospera Energy has no effect on the direction of Seadrill i.e., Seadrill and Prospera Energy go up and down completely randomly.

Pair Corralation between Seadrill and Prospera Energy

Given the investment horizon of 90 days Seadrill Limited is expected to generate 0.36 times more return on investment than Prospera Energy. However, Seadrill Limited is 2.76 times less risky than Prospera Energy. It trades about 0.01 of its potential returns per unit of risk. Prospera Energy is currently generating about -0.14 per unit of risk. If you would invest  4,000  in Seadrill Limited on September 4, 2024 and sell it today you would lose (7.00) from holding Seadrill Limited or give up 0.17% of portfolio value over 90 days.

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

Seadrill Limited  vs.  Prospera Energy

Seadrill Limited

Risk-Adjusted Performance

0 of 100

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 newest stock price mess, may contribute to short-term losses for the institutional investors.

Prospera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Seadrill and Prospera Energy

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

The idea behind Seadrill Limited and Prospera Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.