Correlation Between Seadrill and Alaska Air

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

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

Diversification Opportunities for Seadrill and Alaska Air

0.03

Correlation Coefficient

Seadrill  Alaska Air

Significant diversification

The 3 months correlation between Seadrill and Alaska is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Alaska Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group and Seadrill 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 Seadrill Limited are associated (or correlated) with Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group has no effect on the direction of Seadrill i.e., Seadrill and Alaska Air go up and down completely randomly.

Pair Corralation between Seadrill and Alaska Air

Given the investment horizon of 90 days Seadrill is expected to generate 22.46 times less return on investment than Alaska Air. In addition to that, Seadrill is 1.21 times more volatile than Alaska Air Group. It trades about 0.01 of its total potential returns per unit of risk. Alaska Air Group is currently generating about 0.3 per unit of volatility. If you would invest  3,612  in Alaska Air Group on September 4, 2024 and sell it today you would earn a total of  1,704  from holding Alaska Air Group or generate 47.18% return on investment over 90 days.

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

Seadrill Limited  vs.  Alaska Air Group

Seadrill Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Alaska Air Group

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Alaska Air disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Seadrill and Alaska Air

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

The idea behind Seadrill Limited and Alaska 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.