Correlation Between Seadrill and JD Sports

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

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

Diversification Opportunities for Seadrill and JD Sports

-0.24

Correlation Coefficient

Seadrill  JD Sports

Very good diversification

The 3 months correlation between Seadrill and JDDSF is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Seadrill i.e., Seadrill and JD Sports go up and down completely randomly.

Pair Corralation between Seadrill and JD Sports

Given the investment horizon of 90 days Seadrill Limited is expected to under-perform the JD Sports. But the stock apears to be less risky and, when comparing its historical volatility, Seadrill Limited is 1.08 times less risky than JD Sports. The stock trades about -0.04 of its potential returns per unit of risk. The JD Sports Fashion is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  159.00  in JD Sports Fashion on September 18, 2024 and sell it today you would lose (13.00) from holding JD Sports Fashion or give up 8.18% of portfolio value over 90 days.

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

Seadrill Limited  vs.  JD Sports Fashion

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

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Seadrill and JD Sports

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

The idea behind Seadrill Limited and JD Sports Fashion 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.