Correlation Between Transocean and Vantage Drilling

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

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

Diversification Opportunities for Transocean and Vantage Drilling

-0.09

Correlation Coefficient

Transocean  Vantage Drilling

Good diversification

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

Pair Corralation between Transocean and Vantage Drilling

Considering the 90-day investment horizon Transocean is expected to under-perform the Vantage Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Transocean is 4.36 times less risky than Vantage Drilling. The stock trades about -0.06 of its potential returns per unit of risk. The Vantage Drilling International is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,625  in Vantage Drilling International on September 15, 2024 and sell it today you would lose (75.00) from holding Vantage Drilling International or give up 2.86% of portfolio value over 90 days.

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

Transocean  vs.  Vantage Drilling International

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 uncertain performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Vantage Drilling Int

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vantage Drilling International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Vantage Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transocean and Vantage Drilling

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

The idea behind Transocean and Vantage Drilling International 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.