Correlation Between Aeorema Communications and BW Offshore

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

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

Diversification Opportunities for Aeorema Communications and BW Offshore

-0.53

Correlation Coefficient

Aeorema Communications  BW Offshore

Excellent diversification

The 3 months correlation between Aeorema and 0RKH is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and BW Offshore go up and down completely randomly.

Pair Corralation between Aeorema Communications and BW Offshore

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to under-perform the BW Offshore. But the stock apears to be less risky and, when comparing its historical volatility, Aeorema Communications Plc is 1.15 times less risky than BW Offshore. The stock trades about -0.02 of its potential returns per unit of risk. The BW Offshore is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,181  in BW Offshore on October 11, 2024 and sell it today you would earn a total of  864.00  from holding BW Offshore or generate 39.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.59%
Values	Daily Returns

Aeorema Communications Plc  vs.  BW Offshore

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Aeorema Communications and BW Offshore

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

The idea behind Aeorema Communications Plc and BW Offshore 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.