Correlation Between Transocean and Leonardo Spa

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

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

Diversification Opportunities for Transocean and Leonardo Spa

-0.08

Correlation Coefficient

Transocean  Leonardo Spa

Good diversification

The 3 months correlation between Transocean and Leonardo is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and Leonardo Spa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leonardo Spa and Transocean 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 Transocean are associated (or correlated) with Leonardo Spa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leonardo Spa has no effect on the direction of Transocean i.e., Transocean and Leonardo Spa go up and down completely randomly.

Pair Corralation between Transocean and Leonardo Spa

Considering the 90-day investment horizon Transocean is expected to under-perform the Leonardo Spa. But the stock apears to be less risky and, when comparing its historical volatility, Transocean is 1.47 times less risky than Leonardo Spa. The stock trades about -0.2 of its potential returns per unit of risk. The Leonardo Spa is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,660  in Leonardo Spa on September 12, 2024 and sell it today you would earn a total of  119.00  from holding Leonardo Spa or generate 4.47% return on investment over 90 days.

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

Transocean  vs.  Leonardo Spa

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 nearly stable forward indicators, Transocean is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Leonardo Spa

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Leonardo Spa are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting primary indicators, Leonardo Spa reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transocean and Leonardo Spa

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

The idea behind Transocean and Leonardo Spa 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.