Correlation Between SBM Offshore and Sovereign Metals

Can any of the company-specific risk be diversified away by investing in both SBM Offshore and Sovereign Metals 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 Sovereign Metals 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 Sovereign Metals, you can compare the effects of market volatilities on SBM Offshore and Sovereign Metals 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 Sovereign Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and Sovereign Metals.

Diversification Opportunities for SBM Offshore and Sovereign Metals

0.2

Correlation Coefficient

SBM Offshore  Sovereign Metals

Modest diversification

The 3 months correlation between SBM and Sovereign is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Sovereign Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovereign Metals 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 Sovereign Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sovereign Metals has no effect on the direction of SBM Offshore i.e., SBM Offshore and Sovereign Metals go up and down completely randomly.

Pair Corralation between SBM Offshore and Sovereign Metals

Assuming the 90 days trading horizon SBM Offshore is expected to generate 1.13 times less return on investment than Sovereign Metals. But when comparing it to its historical volatility, SBM Offshore NV is 1.64 times less risky than Sovereign Metals. It trades about 0.05 of its potential returns per unit of risk. Sovereign Metals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,800  in Sovereign Metals on October 25, 2024 and sell it today you would earn a total of  1,050  from holding Sovereign Metals or generate 37.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

SBM Offshore NV  vs.  Sovereign Metals

SBM Offshore NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, SBM Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sovereign Metals

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sovereign Metals may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SBM Offshore and Sovereign Metals

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

The idea behind SBM Offshore NV and Sovereign Metals 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.