Correlation Between APA and Transocean

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

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

Diversification Opportunities for APA and Transocean

-0.18

Correlation Coefficient

APA  Transocean

Good diversification

The 3 months correlation between APA and Transocean is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean and APA 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 APA Corporation are associated (or correlated) with Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of APA i.e., APA and Transocean go up and down completely randomly.

Pair Corralation between APA and Transocean

Assuming the 90 days trading horizon APA Corporation is expected to generate 0.82 times more return on investment than Transocean. However, APA Corporation is 1.22 times less risky than Transocean. It trades about -0.03 of its potential returns per unit of risk. Transocean is currently generating about -0.04 per unit of risk. If you would invest  13,270  in APA Corporation on September 24, 2024 and sell it today you would lose (816.00) from holding APA Corporation or give up 6.15% of portfolio value over 90 days.

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

APA Corp.  vs.  Transocean

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with APA and Transocean

The main advantage of trading using opposite APA and Transocean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA position performs unexpectedly, Transocean 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 Transocean will offset losses from the drop in Transocean's long position.

The idea behind APA Corporation and Transocean 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.