Correlation Between Tyson Foods and Schlumberger

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

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

Diversification Opportunities for Tyson Foods and Schlumberger

0.3

Correlation Coefficient

Tyson Foods  Schlumberger

Weak diversification

The 3 months correlation between Tyson and Schlumberger is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Tyson Foods and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited and Tyson Foods 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 Tyson Foods are associated (or correlated) with Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger Limited has no effect on the direction of Tyson Foods i.e., Tyson Foods and Schlumberger go up and down completely randomly.

Pair Corralation between Tyson Foods and Schlumberger

Assuming the 90 days trading horizon Tyson Foods is expected to generate 1.22 times less return on investment than Schlumberger. But when comparing it to its historical volatility, Tyson Foods is 1.43 times less risky than Schlumberger. It trades about 0.02 of its potential returns per unit of risk. Schlumberger Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  13,463  in Schlumberger Limited on October 23, 2024 and sell it today you would lose (204.00) from holding Schlumberger Limited or give up 1.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	78.11%
Values	Daily Returns

Tyson Foods  vs.  Schlumberger Limited

Tyson Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tyson Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schlumberger Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schlumberger Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Schlumberger may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tyson Foods and Schlumberger

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

The idea behind Tyson Foods and Schlumberger Limited 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.