Correlation Between Seadrill and Cross Timbers
Can any of the company-specific risk be diversified away by investing in both Seadrill and Cross Timbers 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 Seadrill and Cross Timbers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Seadrill Limited and Cross Timbers Royalty, you can compare the effects of market volatilities on Seadrill and Cross Timbers 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 Seadrill with a short position of Cross Timbers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seadrill and Cross Timbers.
Diversification Opportunities for Seadrill and Cross Timbers
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Seadrill and Cross is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Cross Timbers Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cross Timbers Royalty and Seadrill 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 Seadrill Limited are associated (or correlated) with Cross Timbers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cross Timbers Royalty has no effect on the direction of Seadrill i.e., Seadrill and Cross Timbers go up and down completely randomly.
Pair Corralation between Seadrill and Cross Timbers
Given the investment horizon of 90 days Seadrill Limited is expected to under-perform the Cross Timbers. But the stock apears to be less risky and, when comparing its historical volatility, Seadrill Limited is 1.06 times less risky than Cross Timbers. The stock trades about -0.05 of its potential returns per unit of risk. The Cross Timbers Royalty is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 1,299 in Cross Timbers Royalty on September 3, 2024 and sell it today you would lose (205.00) from holding Cross Timbers Royalty or give up 15.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Seadrill Limited vs. Cross Timbers Royalty
Performance |
| Timeline |
| Seadrill Limited |
| Cross Timbers Royalty |
Seadrill and Cross Timbers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Seadrill and Cross Timbers
The main advantage of trading using opposite Seadrill and Cross Timbers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seadrill position performs unexpectedly, Cross Timbers 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 Cross Timbers will offset losses from the drop in Cross Timbers' long position.| Seadrill vs. Nabors Industries | Seadrill vs. Borr Drilling | Seadrill vs. Patterson UTI Energy | Seadrill vs. Noble plc |
| Cross Timbers vs. Seadrill Limited | Cross Timbers vs. Noble plc | Cross Timbers vs. Borr Drilling | Cross Timbers vs. SCOR PK |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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