Correlation Between Seadrill and MEG Energy

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

Diversification Opportunities for Seadrill and MEG Energy

0.2

Correlation Coefficient

Seadrill  MEG Energy

Modest diversification

The 3 months correlation between Seadrill and MEG is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and MEG Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MEG Energy 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 MEG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MEG Energy Corp has no effect on the direction of Seadrill i.e., Seadrill and MEG Energy go up and down completely randomly.

Pair Corralation between Seadrill and MEG Energy

Given the investment horizon of 90 days Seadrill Limited is expected to generate 1.11 times more return on investment than MEG Energy. However, Seadrill is 1.11 times more volatile than MEG Energy Corp. It trades about 0.04 of its potential returns per unit of risk. MEG Energy Corp is currently generating about -0.1 per unit of risk. If you would invest  3,974  in Seadrill Limited on September 4, 2024 and sell it today you would earn a total of  71.00  from holding Seadrill Limited or generate 1.79% return on investment over 90 days.

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

Seadrill Limited  vs.  MEG Energy Corp

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.

MEG Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Seadrill and MEG Energy

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

The idea behind Seadrill Limited and MEG Energy 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.