Correlation Between SBM Offshore and Eco Oil

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

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

Diversification Opportunities for SBM Offshore and Eco Oil

-0.5

Correlation Coefficient

SBM Offshore  Eco Oil

Very good diversification

The 3 months correlation between SBM and Eco is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Eco Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eco Oil Gas and SBM 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 SBM Offshore NV are associated (or correlated) with Eco Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eco Oil Gas has no effect on the direction of SBM Offshore i.e., SBM Offshore and Eco Oil go up and down completely randomly.

Pair Corralation between SBM Offshore and Eco Oil

Assuming the 90 days trading horizon SBM Offshore NV is expected to generate 0.66 times more return on investment than Eco Oil. However, SBM Offshore NV is 1.51 times less risky than Eco Oil. It trades about 0.14 of its potential returns per unit of risk. Eco Oil Gas is currently generating about -0.02 per unit of risk. If you would invest  1,709  in SBM Offshore NV on December 4, 2024 and sell it today you would earn a total of  311.00  from holding SBM Offshore NV or generate 18.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

SBM Offshore NV  vs.  Eco Oil Gas

SBM Offshore NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, SBM Offshore disclosed solid returns over the last few months and may actually be approaching a breakup point.

Eco Oil Gas

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eco Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Eco Oil is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SBM Offshore and Eco Oil

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

The idea behind SBM Offshore NV and Eco Oil Gas 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.