Correlation Between Transocean and Mesa Air

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

By analyzing existing cross correlation between Transocean and Mesa Air Group, you can compare the effects of market volatilities on Transocean and Mesa Air 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 Mesa Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transocean and Mesa Air.

Diversification Opportunities for Transocean and Mesa Air

0.09

Correlation Coefficient

Transocean  Mesa Air

Significant diversification

The 3 months correlation between Transocean and Mesa is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and Mesa Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Air Group 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 Mesa Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Air Group has no effect on the direction of Transocean i.e., Transocean and Mesa Air go up and down completely randomly.

Pair Corralation between Transocean and Mesa Air

Considering the 90-day investment horizon Transocean is expected to under-perform the Mesa Air. But the stock apears to be less risky and, when comparing its historical volatility, Transocean is 1.45 times less risky than Mesa Air. The stock trades about -0.1 of its potential returns per unit of risk. The Mesa Air Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  115.00  in Mesa Air Group on September 20, 2024 and sell it today you would earn a total of  5.00  from holding Mesa Air Group or generate 4.35% return on investment over 90 days.

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

Transocean  vs.  Mesa Air Group

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 weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Mesa Air Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Air Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Mesa Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Transocean and Mesa Air

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

The idea behind Transocean and Mesa Air Group 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.