Correlation Between Balfour Beatty and BW Offshore

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

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

Diversification Opportunities for Balfour Beatty and BW Offshore

-0.28

Correlation Coefficient

Balfour Beatty  BW Offshore

Very good diversification

The 3 months correlation between Balfour and 0RKH is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Balfour Beatty plc and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore and Balfour Beatty 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 Balfour Beatty 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 Balfour Beatty i.e., Balfour Beatty and BW Offshore go up and down completely randomly.

Pair Corralation between Balfour Beatty and BW Offshore

Assuming the 90 days trading horizon Balfour Beatty is expected to generate 1.32 times less return on investment than BW Offshore. But when comparing it to its historical volatility, Balfour Beatty plc is 2.14 times less risky than BW Offshore. It trades about 0.07 of its potential returns per unit of risk. BW Offshore is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,997  in BW Offshore on October 9, 2024 and sell it today you would earn a total of  141.00  from holding BW Offshore or generate 4.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Balfour Beatty plc  vs.  BW Offshore

Balfour Beatty plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Balfour Beatty plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Balfour Beatty is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

BW Offshore

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, BW Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Balfour Beatty and BW Offshore

The main advantage of trading using opposite Balfour Beatty and BW Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balfour Beatty 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 Balfour Beatty 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.