Correlation Between Transocean and SkyWest

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

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

Diversification Opportunities for Transocean and SkyWest

-0.1

Correlation Coefficient

Transocean  SkyWest

Good diversification

The 3 months correlation between Transocean and SkyWest is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and SkyWest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SkyWest 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 SkyWest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SkyWest has no effect on the direction of Transocean i.e., Transocean and SkyWest go up and down completely randomly.

Pair Corralation between Transocean and SkyWest

Considering the 90-day investment horizon Transocean is expected to under-perform the SkyWest. In addition to that, Transocean is 1.4 times more volatile than SkyWest. It trades about -0.08 of its total potential returns per unit of risk. SkyWest is currently generating about 0.17 per unit of volatility. If you would invest  8,390  in SkyWest on September 26, 2024 and sell it today you would earn a total of  1,943  from holding SkyWest or generate 23.16% return on investment over 90 days.

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

Transocean  vs.  SkyWest

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.

SkyWest

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transocean and SkyWest

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

The idea behind Transocean and SkyWest 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.