Correlation Between BW Offshore and SM Energy

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

By analyzing existing cross correlation between BW Offshore and SM Energy Co, you can compare the effects of market volatilities on BW Offshore and SM Energy 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 BW Offshore with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and SM Energy.

Diversification Opportunities for BW Offshore and SM Energy

0.42

Correlation Coefficient

BW Offshore  SM Energy

Very weak diversification

The 3 months correlation between 0RKH and 0KZA is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and BW 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 BW Offshore are associated (or correlated) with SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of BW Offshore i.e., BW Offshore and SM Energy go up and down completely randomly.

Pair Corralation between BW Offshore and SM Energy

Assuming the 90 days trading horizon BW Offshore is expected to generate 0.94 times more return on investment than SM Energy. However, BW Offshore is 1.06 times less risky than SM Energy. It trades about 0.09 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.09 per unit of risk. If you would invest  2,624  in BW Offshore on December 22, 2024 and sell it today you would earn a total of  381.00  from holding BW Offshore or generate 14.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

BW Offshore  vs.  SM Energy Co

BW Offshore

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, BW Offshore unveiled solid returns over the last few months and may actually be approaching a breakup point.

SM Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days SM Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with BW Offshore and SM Energy

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

The idea behind BW Offshore and SM Energy Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..