Correlation Between Seadrill and Sensient Technologies
Can any of the company-specific risk be diversified away by investing in both Seadrill and Sensient Technologies 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 Sensient Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Seadrill Limited and Sensient Technologies, you can compare the effects of market volatilities on Seadrill and Sensient Technologies 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 Sensient Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seadrill and Sensient Technologies.
Diversification Opportunities for Seadrill and Sensient Technologies
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Seadrill and Sensient is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies 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 Sensient Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sensient Technologies has no effect on the direction of Seadrill i.e., Seadrill and Sensient Technologies go up and down completely randomly.
Pair Corralation between Seadrill and Sensient Technologies
Given the investment horizon of 90 days Seadrill Limited is expected to generate 1.35 times more return on investment than Sensient Technologies. However, Seadrill is 1.35 times more volatile than Sensient Technologies. It trades about 0.03 of its potential returns per unit of risk. Sensient Technologies is currently generating about 0.02 per unit of risk. If you would invest 3,705 in Seadrill Limited on August 27, 2024 and sell it today you would earn a total of 456.00 from holding Seadrill Limited or generate 12.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Seadrill Limited vs. Sensient Technologies
Performance |
| Timeline |
| Seadrill Limited |
| Sensient Technologies |
Seadrill and Sensient Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Seadrill and Sensient Technologies
The main advantage of trading using opposite Seadrill and Sensient Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seadrill position performs unexpectedly, Sensient Technologies 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 Sensient Technologies will offset losses from the drop in Sensient Technologies' long position.| Seadrill vs. Nabors Industries | Seadrill vs. Borr Drilling | Seadrill vs. Patterson UTI Energy | Seadrill vs. Noble plc |
| Sensient Technologies vs. Oil Dri | Sensient Technologies vs. H B Fuller | Sensient Technologies vs. Northern Technologies | Sensient Technologies vs. Cabot |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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