Correlation Between Weatherford International and Schlumberger

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

By analyzing existing cross correlation between Weatherford International PLC and Schlumberger NV, you can compare the effects of market volatilities on Weatherford International and Schlumberger 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 Weatherford International with a short position of Schlumberger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weatherford International and Schlumberger.

Diversification Opportunities for Weatherford International and Schlumberger

0.32

Correlation Coefficient

Weatherford International  Schlumberger

Weak diversification

The 3 months correlation between Weatherford and Schlumberger is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Weatherford International PLC and Schlumberger NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger NV and Weatherford International 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 Weatherford International PLC are associated (or correlated) with Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger NV has no effect on the direction of Weatherford International i.e., Weatherford International and Schlumberger go up and down completely randomly.

Pair Corralation between Weatherford International and Schlumberger

Given the investment horizon of 90 days Weatherford International PLC is expected to generate 2.36 times more return on investment than Schlumberger. However, Weatherford International is 2.36 times more volatile than Schlumberger NV. It trades about 0.18 of its potential returns per unit of risk. Schlumberger NV is currently generating about -0.24 per unit of risk. If you would invest  11,371  in Weatherford International PLC on February 16, 2024 and sell it today you would earn a total of  1,075  from holding Weatherford International PLC or generate 9.45% return on investment over 90 days.

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

Weatherford International PLC  vs.  Schlumberger NV

Weatherford International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Weatherford International PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Weatherford International exhibited solid returns over the last few months and may actually be approaching a breakup point.

Schlumberger NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Schlumberger is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Weatherford International and Schlumberger

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

The idea behind Weatherford International PLC and Schlumberger NV 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.