Correlation Between Babcock Wilcox and Power Solutions

Can any of the company-specific risk be diversified away by investing in both Babcock Wilcox and Power Solutions 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 Babcock Wilcox and Power Solutions into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Babcock Wilcox Enterprises and Power Solutions International,, you can compare the effects of market volatilities on Babcock Wilcox and Power Solutions 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 Babcock Wilcox with a short position of Power Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Babcock Wilcox and Power Solutions.

Diversification Opportunities for Babcock Wilcox and Power Solutions

-0.33

Correlation Coefficient

Babcock Wilcox  Power Solutions

Very good diversification

The 3 months correlation between Babcock and Power is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Power Solutions International, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Solutions Inte and Babcock Wilcox 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 Babcock Wilcox Enterprises are associated (or correlated) with Power Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Solutions Inte has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Power Solutions go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Power Solutions

Assuming the 90 days horizon Babcock Wilcox Enterprises is expected to under-perform the Power Solutions. But the preferred stock apears to be less risky and, when comparing its historical volatility, Babcock Wilcox Enterprises is 4.38 times less risky than Power Solutions. The preferred stock trades about -0.1 of its potential returns per unit of risk. The Power Solutions International, is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,315  in Power Solutions International, on October 8, 2024 and sell it today you would earn a total of  545.00  from holding Power Solutions International, or generate 23.54% return on investment over 90 days.

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

Babcock Wilcox Enterprises  vs.  Power Solutions International,

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Preferred Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Power Solutions Inte

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Power Solutions International, are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, Power Solutions showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Babcock Wilcox and Power Solutions

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

The idea behind Babcock Wilcox Enterprises and Power Solutions International, 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.