Correlation Between Basic Materials and Schlumberger
Can any of the company-specific risk be diversified away by investing in both Basic 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 Basic Materials and Schlumberger into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Schlumberger Limited, you can compare the effects of market volatilities on Basic 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 Basic Materials with a short position of Schlumberger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Schlumberger.
Diversification Opportunities for Basic Materials and Schlumberger
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Basic and Schlumberger is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited and Basic 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 Basic 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 Basic Materials i.e., Basic Materials and Schlumberger go up and down completely randomly.
Pair Corralation between Basic Materials and Schlumberger
Assuming the 90 days trading horizon Basic Materials is expected to generate 4.89 times less return on investment than Schlumberger. But when comparing it to its historical volatility, Basic Materials is 2.24 times less risky than Schlumberger. It trades about 0.1 of its potential returns per unit of risk. Schlumberger Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 11,854 in Schlumberger Limited on September 1, 2024 and sell it today you would earn a total of 1,263 from holding Schlumberger Limited or generate 10.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials vs. Schlumberger Limited
Performance |
| Timeline |
Basic Materials and Schlumberger Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Schlumberger Limited
Pair trading matchups for Schlumberger
Pair Trading with Basic Materials and Schlumberger
The main advantage of trading using opposite Basic Materials and Schlumberger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic 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.| Basic Materials vs. GP Investments | Basic Materials vs. TAL Education Group | Basic Materials vs. Deutsche Bank Aktiengesellschaft | Basic Materials vs. STMicroelectronics NV |
| Schlumberger vs. Unity Software | Schlumberger vs. Cognizant Technology Solutions | Schlumberger vs. Spotify Technology SA | Schlumberger vs. salesforce inc |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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