Correlation Between Seadrill and EAM Solar

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

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

Diversification Opportunities for Seadrill and EAM Solar

-0.74

Correlation Coefficient

Seadrill  EAM Solar

Pay attention - limited upside

The 3 months correlation between Seadrill and EAM is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Seadrill and EAM Solar ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAM Solar ASA and Seadrill 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 Seadrill are associated (or correlated) with EAM Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EAM Solar ASA has no effect on the direction of Seadrill i.e., Seadrill and EAM Solar go up and down completely randomly.

Pair Corralation between Seadrill and EAM Solar

Assuming the 90 days trading horizon Seadrill is expected to generate 0.34 times more return on investment than EAM Solar. However, Seadrill is 2.97 times less risky than EAM Solar. It trades about 0.38 of its potential returns per unit of risk. EAM Solar ASA is currently generating about -0.04 per unit of risk. If you would invest  43,500  in Seadrill on January 30, 2024 and sell it today you would earn a total of  11,300  from holding Seadrill or generate 25.98% return on investment over 90 days.

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

Seadrill  vs.  EAM Solar ASA

Seadrill

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Seadrill are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Seadrill disclosed solid returns over the last few months and may actually be approaching a breakup point.

EAM Solar ASA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EAM Solar ASA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting primary indicators, EAM Solar may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Seadrill and EAM Solar

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

The idea behind Seadrill and EAM Solar ASA 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.