Correlation Between Schlumberger and Select Sector

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

By analyzing existing cross correlation between Schlumberger Limited and The Select Sector, you can compare the effects of market volatilities on Schlumberger and Select Sector 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 Schlumberger with a short position of Select Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schlumberger and Select Sector.

Diversification Opportunities for Schlumberger and Select Sector

0.59

Correlation Coefficient

Schlumberger  Select Sector

Very weak diversification

The 3 months correlation between Schlumberger and Select is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Schlumberger Limited and The Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Sector and Schlumberger 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 Schlumberger Limited are associated (or correlated) with Select Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Sector has no effect on the direction of Schlumberger i.e., Schlumberger and Select Sector go up and down completely randomly.

Pair Corralation between Schlumberger and Select Sector

Assuming the 90 days trading horizon Schlumberger Limited is expected to under-perform the Select Sector. In addition to that, Schlumberger is 1.06 times more volatile than The Select Sector. It trades about -0.02 of its total potential returns per unit of risk. The Select Sector is currently generating about 0.04 per unit of volatility. If you would invest  118,094  in The Select Sector on October 5, 2024 and sell it today you would earn a total of  37,409  from holding The Select Sector or generate 31.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Schlumberger Limited  vs.  The Select Sector

Schlumberger Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Select Sector

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Select Sector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schlumberger and Select Sector

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

The idea behind Schlumberger Limited and The Select Sector 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.

Check out your portfolio center.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.