Correlation Between Africa Oil and Seadrill
Can any of the company-specific risk be diversified away by investing in both Africa Oil 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 Africa Oil and Seadrill into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Africa Oil Corp and Seadrill Limited, you can compare the effects of market volatilities on Africa Oil 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 Africa Oil with a short position of Seadrill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Africa Oil and Seadrill.
Diversification Opportunities for Africa Oil and Seadrill
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Africa and Seadrill is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Africa Oil Corp and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and Africa Oil 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 Africa Oil Corp 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 Africa Oil i.e., Africa Oil and Seadrill go up and down completely randomly.
Pair Corralation between Africa Oil and Seadrill
Assuming the 90 days horizon Africa Oil Corp is expected to under-perform the Seadrill. But the pink sheet apears to be less risky and, when comparing its historical volatility, Africa Oil Corp is 1.07 times less risky than Seadrill. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Seadrill Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,984 in Seadrill Limited on September 12, 2024 and sell it today you would earn a total of 892.00 from holding Seadrill Limited or generate 29.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Africa Oil Corp vs. Seadrill Limited
Performance |
| Timeline |
| Africa Oil Corp |
| Seadrill Limited |
Africa Oil and Seadrill Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Africa Oil and Seadrill
The main advantage of trading using opposite Africa Oil and Seadrill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Africa Oil 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.| Africa Oil vs. POSCO Holdings | Africa Oil vs. Schweizerische Nationalbank | Africa Oil vs. Berkshire Hathaway | Africa Oil vs. Berkshire Hathaway |
| Seadrill vs. Nabors Industries | Seadrill vs. Borr Drilling | Seadrill vs. Transocean | Seadrill vs. Helmerich and Payne |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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