Correlation Between Subsea 7 and Frontline
Can any of the company-specific risk be diversified away by investing in both Subsea 7 and Frontline 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 Subsea 7 and Frontline into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Subsea 7 SA and Frontline, you can compare the effects of market volatilities on Subsea 7 and Frontline 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 Subsea 7 with a short position of Frontline. Check out your portfolio center. Please also check ongoing floating volatility patterns of Subsea 7 and Frontline.
Diversification Opportunities for Subsea 7 and Frontline
Modest diversification
The 3 months correlation between Subsea and Frontline is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Subsea 7 SA and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline and Subsea 7 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 Subsea 7 SA are associated (or correlated) with Frontline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontline has no effect on the direction of Subsea 7 i.e., Subsea 7 and Frontline go up and down completely randomly.
Pair Corralation between Subsea 7 and Frontline
Assuming the 90 days trading horizon Subsea 7 SA is expected to generate 0.75 times more return on investment than Frontline. However, Subsea 7 SA is 1.34 times less risky than Frontline. It trades about 0.08 of its potential returns per unit of risk. Frontline is currently generating about 0.04 per unit of risk. If you would invest 14,312 in Subsea 7 SA on August 25, 2024 and sell it today you would earn a total of 4,198 from holding Subsea 7 SA or generate 29.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Subsea 7 SA vs. Frontline
Performance |
| Timeline |
| Subsea 7 SA |
| Frontline |
Subsea 7 and Frontline Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Subsea 7 and Frontline
The main advantage of trading using opposite Subsea 7 and Frontline positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subsea 7 position performs unexpectedly, Frontline 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 Frontline will offset losses from the drop in Frontline's long position.The idea behind Subsea 7 SA and Frontline 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.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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
Other Complementary Tools
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account |