Correlation Between Subsea 7 and TGS NOPEC

Can any of the company-specific risk be diversified away by investing in both Subsea 7 and TGS NOPEC 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 Subsea 7 and TGS NOPEC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Subsea 7 SA and TGS NOPEC Geophysical, you can compare the effects of market volatilities on Subsea 7 and TGS NOPEC 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 Subsea 7 with a short position of TGS NOPEC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Subsea 7 and TGS NOPEC.

Diversification Opportunities for Subsea 7 and TGS NOPEC

0.92

Correlation Coefficient

Subsea 7  TGS NOPEC

Almost no diversification

The 3 months correlation between Subsea and TGS is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Subsea 7 SA and TGS NOPEC Geophysical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TGS NOPEC Geophysical and Subsea 7 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 Subsea 7 SA are associated (or correlated) with TGS NOPEC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TGS NOPEC Geophysical has no effect on the direction of Subsea 7 i.e., Subsea 7 and TGS NOPEC go up and down completely randomly.

Pair Corralation between Subsea 7 and TGS NOPEC

Assuming the 90 days trading horizon Subsea 7 is expected to generate 3.41 times less return on investment than TGS NOPEC. But when comparing it to its historical volatility, Subsea 7 SA is 1.86 times less risky than TGS NOPEC. It trades about 0.08 of its potential returns per unit of risk. TGS NOPEC Geophysical is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  12,110  in TGS NOPEC Geophysical on January 30, 2024 and sell it today you would earn a total of  930.00  from holding TGS NOPEC Geophysical or generate 7.68% return on investment over 90 days.

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

Subsea 7 SA  vs.  TGS NOPEC Geophysical

Subsea 7 SA

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Subsea 7 SA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Subsea 7 disclosed solid returns over the last few months and may actually be approaching a breakup point.

TGS NOPEC Geophysical

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Subsea 7 and TGS NOPEC

The main advantage of trading using opposite Subsea 7 and TGS NOPEC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subsea 7 position performs unexpectedly, TGS NOPEC 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 TGS NOPEC will offset losses from the drop in TGS NOPEC's long position.

The idea behind Subsea 7 SA and TGS NOPEC Geophysical 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 Transaction History module to view history of all your transactions and understand their impact on performance.