Correlation Between Seadrill and Talon Energy

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

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

Diversification Opportunities for Seadrill and Talon Energy

0.33

Correlation Coefficient

Seadrill  Talon Energy

Weak diversification

The 3 months correlation between Seadrill and Talon is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill Limited and Talon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talon Energy 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 Talon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talon Energy has no effect on the direction of Seadrill i.e., Seadrill and Talon Energy go up and down completely randomly.

Pair Corralation between Seadrill and Talon Energy

Given the investment horizon of 90 days Seadrill is expected to generate 128.5 times less return on investment than Talon Energy. But when comparing it to its historical volatility, Seadrill Limited is 35.88 times less risky than Talon Energy. It trades about 0.02 of its potential returns per unit of risk. Talon Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.50  in Talon Energy on September 26, 2024 and sell it today you would earn a total of  4.50  from holding Talon Energy or generate 900.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	27.62%
Values	Daily Returns

Seadrill Limited  vs.  Talon Energy

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 latest unfluctuating performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Talon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Talon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Talon Energy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Seadrill and Talon Energy

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

The idea behind Seadrill Limited and Talon Energy 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.