Correlation Between Seadrill and Patterson UTI

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

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

Diversification Opportunities for Seadrill and Patterson UTI

0.65

Correlation Coefficient

Seadrill  Patterson UTI

Poor diversification

The 3 months correlation between Seadrill and Patterson is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Patterson UTI Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patterson UTI 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 Patterson UTI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patterson UTI Energy has no effect on the direction of Seadrill i.e., Seadrill and Patterson UTI go up and down completely randomly.

Pair Corralation between Seadrill and Patterson UTI

Given the investment horizon of 90 days Seadrill Limited is expected to generate 0.93 times more return on investment than Patterson UTI. However, Seadrill Limited is 1.08 times less risky than Patterson UTI. It trades about 0.01 of its potential returns per unit of risk. Patterson UTI Energy is currently generating about -0.01 per unit of risk. If you would invest  4,075  in Seadrill Limited on September 2, 2024 and sell it today you would lose (11.00) from holding Seadrill Limited or give up 0.27% of portfolio value over 90 days.

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

Seadrill Limited  vs.  Patterson UTI 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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Patterson UTI Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Patterson UTI Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Patterson UTI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Seadrill and Patterson UTI

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

The idea behind Seadrill Limited and Patterson UTI 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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.