Correlation Between Vistra Energy and Transocean

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

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

Diversification Opportunities for Vistra Energy and Transocean

-0.2

Correlation Coefficient

Vistra Energy  Transocean

Good diversification

The 3 months correlation between Vistra and Transocean is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Vistra Energy Corp and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean and Vistra Energy 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 Vistra Energy Corp are associated (or correlated) with Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Vistra Energy i.e., Vistra Energy and Transocean go up and down completely randomly.

Pair Corralation between Vistra Energy and Transocean

Considering the 90-day investment horizon Vistra Energy Corp is expected to generate 1.41 times more return on investment than Transocean. However, Vistra Energy is 1.41 times more volatile than Transocean. It trades about 0.2 of its potential returns per unit of risk. Transocean is currently generating about -0.09 per unit of risk. If you would invest  9,093  in Vistra Energy Corp on September 17, 2024 and sell it today you would earn a total of  5,396  from holding Vistra Energy Corp or generate 59.34% return on investment over 90 days.

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

Vistra Energy Corp  vs.  Transocean

Vistra Energy Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vistra Energy Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Vistra Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Vistra Energy and Transocean

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

The idea behind Vistra Energy Corp and Transocean 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.