Correlation Between Baker Hughes and Schlumberger

Can any of the company-specific risk be diversified away by investing in both Baker Hughes 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 Baker Hughes and Schlumberger into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Baker Hughes Co and Schlumberger Limited, you can compare the effects of market volatilities on Baker Hughes 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 Baker Hughes with a short position of Schlumberger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baker Hughes and Schlumberger.

Diversification Opportunities for Baker Hughes and Schlumberger

0.57

Correlation Coefficient

Baker Hughes  Schlumberger

Very weak diversification

The 3 months correlation between Baker and Schlumberger is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Baker Hughes Co and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited and Baker Hughes 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 Baker Hughes Co 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 Baker Hughes i.e., Baker Hughes and Schlumberger go up and down completely randomly.

Pair Corralation between Baker Hughes and Schlumberger

Assuming the 90 days horizon Baker Hughes Co is expected to generate 0.88 times more return on investment than Schlumberger. However, Baker Hughes Co is 1.13 times less risky than Schlumberger. It trades about 0.14 of its potential returns per unit of risk. Schlumberger Limited is currently generating about -0.02 per unit of risk. If you would invest  3,233  in Baker Hughes Co on September 23, 2024 and sell it today you would earn a total of  621.00  from holding Baker Hughes Co or generate 19.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Baker Hughes Co  vs.  Schlumberger Limited

Baker Hughes

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Baker Hughes reported solid returns over the last few months and may actually be approaching a breakup point.

Schlumberger Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Schlumberger is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Baker Hughes and Schlumberger

The main advantage of trading using opposite Baker Hughes and Schlumberger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baker Hughes 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.

The idea behind Baker Hughes Co and Schlumberger Limited 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.