Correlation Between SD Standard and Eidesvik Offshore

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

By analyzing existing cross correlation between SD Standard Drilling and Eidesvik Offshore ASA, you can compare the effects of market volatilities on SD Standard and Eidesvik Offshore 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 SD Standard with a short position of Eidesvik Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of SD Standard and Eidesvik Offshore.

Diversification Opportunities for SD Standard and Eidesvik Offshore

-0.66

Correlation Coefficient

SD Standard  Eidesvik Offshore

Excellent diversification

The 3 months correlation between SDSD and Eidesvik is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding SD Standard Drilling and Eidesvik Offshore ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eidesvik Offshore ASA and SD Standard 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 SD Standard Drilling are associated (or correlated) with Eidesvik Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eidesvik Offshore ASA has no effect on the direction of SD Standard i.e., SD Standard and Eidesvik Offshore go up and down completely randomly.

Pair Corralation between SD Standard and Eidesvik Offshore

Assuming the 90 days trading horizon SD Standard Drilling is expected to generate 0.45 times more return on investment than Eidesvik Offshore. However, SD Standard Drilling is 2.24 times less risky than Eidesvik Offshore. It trades about 0.06 of its potential returns per unit of risk. Eidesvik Offshore ASA is currently generating about -0.03 per unit of risk. If you would invest  166.00  in SD Standard Drilling on October 20, 2024 and sell it today you would earn a total of  5.00  from holding SD Standard Drilling or generate 3.01% return on investment over 90 days.

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

SD Standard Drilling  vs.  Eidesvik Offshore ASA

SD Standard Drilling

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SD Standard Drilling are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, SD Standard is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Eidesvik Offshore ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eidesvik Offshore ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Eidesvik Offshore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SD Standard and Eidesvik Offshore

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

The idea behind SD Standard Drilling and Eidesvik Offshore ASA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.