Correlation Between Transocean and Western Sierra

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

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

Diversification Opportunities for Transocean and Western Sierra

0.15

Correlation Coefficient

Transocean  Western Sierra

Average diversification

The 3 months correlation between Transocean and Western is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and Western Sierra Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Sierra Mining 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 Western Sierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Sierra Mining has no effect on the direction of Transocean i.e., Transocean and Western Sierra go up and down completely randomly.

Pair Corralation between Transocean and Western Sierra

Considering the 90-day investment horizon Transocean is expected to generate 2.54 times more return on investment than Western Sierra. However, Transocean is 2.54 times more volatile than Western Sierra Mining. It trades about 0.04 of its potential returns per unit of risk. Western Sierra Mining is currently generating about -0.17 per unit of risk. If you would invest  417.00  in Transocean on September 5, 2024 and sell it today you would earn a total of  24.00  from holding Transocean or generate 5.76% return on investment over 90 days.

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

Transocean  vs.  Western Sierra Mining

Transocean

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transocean are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady forward indicators, Transocean may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Western Sierra Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Sierra Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Transocean and Western Sierra

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

The idea behind Transocean and Western Sierra Mining 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.