Correlation Between Vulcan Materials and Schlumberger

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

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

Diversification Opportunities for Vulcan Materials and Schlumberger

0.36

Correlation Coefficient

Vulcan Materials  Schlumberger

Weak diversification

The 3 months correlation between Vulcan and Schlumberger is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and Schlumberger go up and down completely randomly.

Pair Corralation between Vulcan Materials and Schlumberger

Assuming the 90 days trading horizon Vulcan Materials is expected to under-perform the Schlumberger. But the stock apears to be less risky and, when comparing its historical volatility, Vulcan Materials is 1.69 times less risky than Schlumberger. The stock trades about -0.37 of its potential returns per unit of risk. The Schlumberger Limited is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  12,636  in Schlumberger Limited on October 10, 2024 and sell it today you would lose (564.00) from holding Schlumberger Limited or give up 4.46% of portfolio value over 90 days.

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

Vulcan Materials  vs.  Schlumberger Limited

Vulcan Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Vulcan Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

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. Despite somewhat strong fundamental drivers, Schlumberger is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vulcan Materials and Schlumberger

The main advantage of trading using opposite Vulcan Materials and Schlumberger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.