Correlation Between DS Smith and Odfjell Drilling

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

By analyzing existing cross correlation between DS Smith PLC and Odfjell Drilling, you can compare the effects of market volatilities on DS Smith and Odfjell Drilling 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 DS Smith with a short position of Odfjell Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of DS Smith and Odfjell Drilling.

Diversification Opportunities for DS Smith and Odfjell Drilling

0.04

Correlation Coefficient

DS Smith  Odfjell Drilling

Significant diversification

The 3 months correlation between SMDS and Odfjell is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding DS Smith PLC and Odfjell Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odfjell Drilling and DS Smith 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 DS Smith PLC are associated (or correlated) with Odfjell Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odfjell Drilling has no effect on the direction of DS Smith i.e., DS Smith and Odfjell Drilling go up and down completely randomly.

Pair Corralation between DS Smith and Odfjell Drilling

Assuming the 90 days trading horizon DS Smith PLC is expected to generate 1.07 times more return on investment than Odfjell Drilling. However, DS Smith is 1.07 times more volatile than Odfjell Drilling. It trades about 0.16 of its potential returns per unit of risk. Odfjell Drilling is currently generating about 0.11 per unit of risk. If you would invest  46,459  in DS Smith PLC on October 12, 2024 and sell it today you would earn a total of  10,291  from holding DS Smith PLC or generate 22.15% return on investment over 90 days.

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

DS Smith PLC  vs.  Odfjell Drilling

DS Smith PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DS Smith PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DS Smith unveiled solid returns over the last few months and may actually be approaching a breakup point.

Odfjell Drilling

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Odfjell Drilling are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Odfjell Drilling unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DS Smith and Odfjell Drilling

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

The idea behind DS Smith PLC and Odfjell Drilling 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.