Correlation Between Seadrill and Laredo Oil

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

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

Diversification Opportunities for Seadrill and Laredo Oil

0.52

Correlation Coefficient

Seadrill  Laredo Oil

Very weak diversification

The 3 months correlation between Seadrill and Laredo is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Laredo Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laredo Oil 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 Laredo Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laredo Oil has no effect on the direction of Seadrill i.e., Seadrill and Laredo Oil go up and down completely randomly.

Pair Corralation between Seadrill and Laredo Oil

Given the investment horizon of 90 days Seadrill is expected to generate 4.74 times less return on investment than Laredo Oil. But when comparing it to its historical volatility, Seadrill Limited is 2.28 times less risky than Laredo Oil. It trades about 0.01 of its potential returns per unit of risk. Laredo Oil is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Laredo Oil on September 3, 2024 and sell it today you would lose (1.00) from holding Laredo Oil or give up 2.22% of portfolio value over 90 days.

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

Seadrill Limited  vs.  Laredo Oil

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Laredo Oil

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Laredo Oil are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Laredo Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Seadrill and Laredo Oil

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

The idea behind Seadrill Limited and Laredo Oil 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.