Correlation Between Seadrill and MagnaChip Semiconductor

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

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

Diversification Opportunities for Seadrill and MagnaChip Semiconductor

-0.25

Correlation Coefficient

Seadrill  MagnaChip Semiconductor

Very good diversification

The 3 months correlation between Seadrill and MagnaChip is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and MagnaChip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MagnaChip Semiconductor 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 MagnaChip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MagnaChip Semiconductor has no effect on the direction of Seadrill i.e., Seadrill and MagnaChip Semiconductor go up and down completely randomly.

Pair Corralation between Seadrill and MagnaChip Semiconductor

Given the investment horizon of 90 days Seadrill Limited is expected to generate 1.01 times more return on investment than MagnaChip Semiconductor. However, Seadrill is 1.01 times more volatile than MagnaChip Semiconductor. It trades about 0.03 of its potential returns per unit of risk. MagnaChip Semiconductor is currently generating about -0.06 per unit of risk. If you would invest  3,024  in Seadrill Limited on September 23, 2024 and sell it today you would earn a total of  608.00  from holding Seadrill Limited or generate 20.11% return on investment over 90 days.

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

Seadrill Limited  vs.  MagnaChip Semiconductor

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 latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

MagnaChip Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MagnaChip Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Seadrill and MagnaChip Semiconductor

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

The idea behind Seadrill Limited and MagnaChip Semiconductor 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.