Correlation Between BW Offshore and Premier Foods

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

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

Diversification Opportunities for BW Offshore and Premier Foods

-0.19

Correlation Coefficient

BW Offshore  Premier Foods

Good diversification

The 3 months correlation between 0RKH and Premier is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Premier Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods PLC 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 Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods PLC has no effect on the direction of BW Offshore i.e., BW Offshore and Premier Foods go up and down completely randomly.

Pair Corralation between BW Offshore and Premier Foods

Assuming the 90 days trading horizon BW Offshore is expected to generate 1.64 times more return on investment than Premier Foods. However, BW Offshore is 1.64 times more volatile than Premier Foods PLC. It trades about 0.29 of its potential returns per unit of risk. Premier Foods PLC is currently generating about -0.2 per unit of risk. If you would invest  2,775  in BW Offshore on October 22, 2024 and sell it today you would earn a total of  300.00  from holding BW Offshore or generate 10.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

BW Offshore  vs.  Premier Foods PLC

BW Offshore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Offshore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BW Offshore is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Premier Foods PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premier Foods PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with BW Offshore and Premier Foods

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

The idea behind BW Offshore and Premier Foods PLC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.