Correlation Between Subsea 7 and Prosafe SE

Can any of the company-specific risk be diversified away by investing in both Subsea 7 and Prosafe SE 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 Subsea 7 and Prosafe SE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Subsea 7 SA and Prosafe SE, you can compare the effects of market volatilities on Subsea 7 and Prosafe SE 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 Subsea 7 with a short position of Prosafe SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Subsea 7 and Prosafe SE.

Diversification Opportunities for Subsea 7 and Prosafe SE

0.75

Correlation Coefficient

Subsea 7  Prosafe SE

Poor diversification

The 3 months correlation between Subsea and Prosafe is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Subsea 7 SA and Prosafe SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosafe SE and Subsea 7 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 Subsea 7 SA are associated (or correlated) with Prosafe SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosafe SE has no effect on the direction of Subsea 7 i.e., Subsea 7 and Prosafe SE go up and down completely randomly.

Pair Corralation between Subsea 7 and Prosafe SE

Assuming the 90 days trading horizon Subsea 7 is expected to generate 80.11 times less return on investment than Prosafe SE. But when comparing it to its historical volatility, Subsea 7 SA is 6.85 times less risky than Prosafe SE. It trades about 0.01 of its potential returns per unit of risk. Prosafe SE is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  650.00  in Prosafe SE on December 1, 2024 and sell it today you would earn a total of  90.00  from holding Prosafe SE or generate 13.85% return on investment over 90 days.

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

Subsea 7 SA  vs.  Prosafe SE

Subsea 7 SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Subsea 7 SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Subsea 7 is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Prosafe SE

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prosafe SE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Prosafe SE disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Subsea 7 and Prosafe SE

The main advantage of trading using opposite Subsea 7 and Prosafe SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subsea 7 position performs unexpectedly, Prosafe SE 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 Prosafe SE will offset losses from the drop in Prosafe SE's long position.

The idea behind Subsea 7 SA and Prosafe SE 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..