Correlation Between Schlumberger and ConocoPhillips

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

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

Diversification Opportunities for Schlumberger and ConocoPhillips

0.52

Correlation Coefficient

Schlumberger  ConocoPhillips

Very weak diversification

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

Pair Corralation between Schlumberger and ConocoPhillips

Assuming the 90 days trading horizon Schlumberger Limited is expected to under-perform the ConocoPhillips. But the stock apears to be less risky and, when comparing its historical volatility, Schlumberger Limited is 1.02 times less risky than ConocoPhillips. The stock trades about -0.03 of its potential returns per unit of risk. The ConocoPhillips is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  5,028  in ConocoPhillips on September 22, 2024 and sell it today you would lose (160.00) from holding ConocoPhillips or give up 3.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Schlumberger Limited  vs.  ConocoPhillips

Schlumberger Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Schlumberger is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ConocoPhillips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ConocoPhillips has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ConocoPhillips is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schlumberger and ConocoPhillips

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

The idea behind Schlumberger Limited and ConocoPhillips 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.