Correlation Between NORFOLK and Seadrill

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

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

Diversification Opportunities for NORFOLK and Seadrill

-0.14

Correlation Coefficient

NORFOLK  Seadrill

Good diversification

The 3 months correlation between NORFOLK and Seadrill is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding NORFOLK SOUTHN P and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and NORFOLK 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 NORFOLK SOUTHN P are associated (or correlated) with Seadrill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seadrill Limited has no effect on the direction of NORFOLK i.e., NORFOLK and Seadrill go up and down completely randomly.

Pair Corralation between NORFOLK and Seadrill

Assuming the 90 days trading horizon NORFOLK SOUTHN P is expected to under-perform the Seadrill. But the bond apears to be less risky and, when comparing its historical volatility, NORFOLK SOUTHN P is 1.94 times less risky than Seadrill. The bond trades about -0.16 of its potential returns per unit of risk. The Seadrill Limited is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  4,137  in Seadrill Limited on September 24, 2024 and sell it today you would lose (505.00) from holding Seadrill Limited or give up 12.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	46.15%
Values	Daily Returns

NORFOLK SOUTHN P  vs.  Seadrill Limited

NORFOLK SOUTHN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORFOLK SOUTHN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for NORFOLK SOUTHN P investors.

Seadrill Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with NORFOLK and Seadrill

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

The idea behind NORFOLK SOUTHN P and Seadrill 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.