Correlation Between Noble Plc and Diamond Offshore

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

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

Diversification Opportunities for Noble Plc and Diamond Offshore

0.95

Correlation Coefficient

Noble Plc  Diamond Offshore

Almost no diversification

The 3 months correlation between Noble and Diamond is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Noble plc and Diamond Offshore Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Offshore Drilling and Noble Plc 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 Noble plc are associated (or correlated) with Diamond Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Offshore Drilling has no effect on the direction of Noble Plc i.e., Noble Plc and Diamond Offshore go up and down completely randomly.

Pair Corralation between Noble Plc and Diamond Offshore

Allowing for the 90-day total investment horizon Noble plc is expected to generate 0.83 times more return on investment than Diamond Offshore. However, Noble plc is 1.2 times less risky than Diamond Offshore. It trades about -0.08 of its potential returns per unit of risk. Diamond Offshore Drilling is currently generating about -0.08 per unit of risk. If you would invest  4,777  in Noble plc on January 29, 2024 and sell it today you would lose (148.00) from holding Noble plc or give up 3.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Noble plc  vs.  Diamond Offshore Drilling

Noble plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Noble plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Noble Plc is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Diamond Offshore Drilling

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Offshore Drilling are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Diamond Offshore is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Noble Plc and Diamond Offshore

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

The idea behind Noble plc and Diamond Offshore 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.