Correlation Between Valaris and Tidewater

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

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

Diversification Opportunities for Valaris and Tidewater

0.9

Correlation Coefficient

Valaris  Tidewater

Almost no diversification

The 3 months correlation between Valaris and Tidewater is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Valaris and Tidewater in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tidewater and Valaris 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 Valaris are associated (or correlated) with Tidewater. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tidewater has no effect on the direction of Valaris i.e., Valaris and Tidewater go up and down completely randomly.

Pair Corralation between Valaris and Tidewater

Considering the 90-day investment horizon Valaris is expected to generate 0.97 times more return on investment than Tidewater. However, Valaris is 1.03 times less risky than Tidewater. It trades about -0.03 of its potential returns per unit of risk. Tidewater is currently generating about -0.1 per unit of risk. If you would invest  4,288  in Valaris on December 29, 2024 and sell it today you would lose (341.00) from holding Valaris or give up 7.95% of portfolio value over 90 days.

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

Valaris  vs.  Tidewater

Valaris

Risk-Adjusted Performance

Very Weak

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

Tidewater

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tidewater has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Valaris and Tidewater

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

The idea behind Valaris and Tidewater 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.