Correlation Between BW Offshore and Cboe UK

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

By analyzing existing cross correlation between BW Offshore and Cboe UK Consumer, you can compare the effects of market volatilities on BW Offshore and Cboe UK 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 Cboe UK. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and Cboe UK.

Diversification Opportunities for BW Offshore and Cboe UK

-0.31

Correlation Coefficient

BW Offshore  Cboe UK

Very good diversification

The 3 months correlation between 0RKH and Cboe is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Cboe UK Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cboe UK Consumer 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 Cboe UK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cboe UK Consumer has no effect on the direction of BW Offshore i.e., BW Offshore and Cboe UK go up and down completely randomly.

Pair Corralation between BW Offshore and Cboe UK

Assuming the 90 days trading horizon BW Offshore is expected to generate 2.37 times more return on investment than Cboe UK. However, BW Offshore is 2.37 times more volatile than Cboe UK Consumer. It trades about 0.12 of its potential returns per unit of risk. Cboe UK Consumer is currently generating about 0.24 per unit of risk. If you would invest  2,636  in BW Offshore on September 17, 2024 and sell it today you would earn a total of  122.00  from holding BW Offshore or generate 4.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BW Offshore  vs.  Cboe UK Consumer

Pair Trading with BW Offshore and Cboe UK

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

The idea behind BW Offshore and Cboe UK Consumer 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.