Correlation Between Borr Drilling and Odfjell Drilling

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

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

Diversification Opportunities for Borr Drilling and Odfjell Drilling

0.22

Correlation Coefficient

Borr Drilling  Odfjell Drilling

Modest diversification

The 3 months correlation between Borr and Odfjell is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Borr Drilling and Odfjell Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odfjell Drilling and Borr Drilling 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 Borr Drilling are associated (or correlated) with Odfjell Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odfjell Drilling has no effect on the direction of Borr Drilling i.e., Borr Drilling and Odfjell Drilling go up and down completely randomly.

Pair Corralation between Borr Drilling and Odfjell Drilling

Assuming the 90 days trading horizon Borr Drilling is expected to under-perform the Odfjell Drilling. In addition to that, Borr Drilling is 1.49 times more volatile than Odfjell Drilling. It trades about -0.17 of its total potential returns per unit of risk. Odfjell Drilling is currently generating about -0.05 per unit of volatility. If you would invest  5,371  in Odfjell Drilling on September 23, 2024 and sell it today you would lose (411.00) from holding Odfjell Drilling or give up 7.65% of portfolio value over 90 days.

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

Borr Drilling  vs.  Odfjell Drilling

Borr Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Borr Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Odfjell Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Odfjell Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Odfjell Drilling is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Borr Drilling and Odfjell Drilling

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

The idea behind Borr Drilling and Odfjell Drilling 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.