Correlation Between Diamond Offshore and Shelf Drilling

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

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

Diversification Opportunities for Diamond Offshore and Shelf Drilling

-0.72

Correlation Coefficient

Diamond Offshore  Shelf Drilling

Pay attention - limited upside

The 3 months correlation between Diamond and Shelf is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Offshore Drilling and Shelf Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shelf Drilling and Diamond Offshore 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 Diamond Offshore Drilling are associated (or correlated) with Shelf Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shelf Drilling has no effect on the direction of Diamond Offshore i.e., Diamond Offshore and Shelf Drilling go up and down completely randomly.

Pair Corralation between Diamond Offshore and Shelf Drilling

Allowing for the 90-day total investment horizon Diamond Offshore Drilling is expected to generate 0.35 times more return on investment than Shelf Drilling. However, Diamond Offshore Drilling is 2.85 times less risky than Shelf Drilling. It trades about -0.08 of its potential returns per unit of risk. Shelf Drilling is currently generating about -0.18 per unit of risk. If you would invest  1,370  in Diamond Offshore Drilling on January 30, 2024 and sell it today you would lose (50.00) from holding Diamond Offshore Drilling or give up 3.65% of portfolio value over 90 days.

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

Diamond Offshore Drilling  vs.  Shelf Drilling

Diamond Offshore Drilling

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Offshore Drilling are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Diamond Offshore may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Shelf Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shelf Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Diamond Offshore and Shelf Drilling

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

The idea behind Diamond Offshore Drilling and Shelf Drilling 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.