Correlation Between Western Energy and Seadrill

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

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

Diversification Opportunities for Western Energy and Seadrill

-0.25

Correlation Coefficient

Western Energy  Seadrill

Very good diversification

The 3 months correlation between Western and Seadrill is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Western Energy Services and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited and Western 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 Western Energy Services are associated (or correlated) with Seadrill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seadrill Limited has no effect on the direction of Western Energy i.e., Western Energy and Seadrill go up and down completely randomly.

Pair Corralation between Western Energy and Seadrill

Assuming the 90 days horizon Western Energy Services is expected to under-perform the Seadrill. But the pink sheet apears to be less risky and, when comparing its historical volatility, Western Energy Services is 1.6 times less risky than Seadrill. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Seadrill Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,975  in Seadrill Limited on September 5, 2024 and sell it today you would earn a total of  70.00  from holding Seadrill Limited or generate 1.76% return on investment over 90 days.

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

Western Energy Services  vs.  Seadrill Limited

Western Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Seadrill Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seadrill Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Western Energy and Seadrill

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

The idea behind Western Energy Services and Seadrill Limited 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.