Correlation Between Seadrill and CHURCH

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

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

Diversification Opportunities for Seadrill and CHURCH

0.65

Correlation Coefficient

Seadrill  CHURCH

Poor diversification

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

Pair Corralation between Seadrill and CHURCH

Given the investment horizon of 90 days Seadrill Limited is expected to generate 1.8 times more return on investment than CHURCH. However, Seadrill is 1.8 times more volatile than CHURCH DWIGHT INC. It trades about 0.0 of its potential returns per unit of risk. CHURCH DWIGHT INC is currently generating about -0.1 per unit of risk. If you would invest  3,835  in Seadrill Limited on October 11, 2024 and sell it today you would lose (55.00) from holding Seadrill Limited or give up 1.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	41.94%
Values	Daily Returns

Seadrill Limited  vs.  CHURCH DWIGHT INC

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.

CHURCH DWIGHT INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHURCH DWIGHT INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for CHURCH DWIGHT INC investors.

Pair Trading with Seadrill and CHURCH

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

The idea behind Seadrill Limited and CHURCH DWIGHT INC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.