Correlation Between Babcock Wilcox and Synchrony Financial

Can any of the company-specific risk be diversified away by investing in both Babcock Wilcox and Synchrony Financial 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 Synchrony Financial 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 Synchrony Financial, you can compare the effects of market volatilities on Babcock Wilcox and Synchrony Financial 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 Synchrony Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Babcock Wilcox and Synchrony Financial.

Diversification Opportunities for Babcock Wilcox and Synchrony Financial

0.46

Correlation Coefficient

Babcock Wilcox  Synchrony Financial

Very weak diversification

The 3 months correlation between Babcock and Synchrony is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Synchrony Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synchrony Financial 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 Synchrony Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synchrony Financial has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Synchrony Financial go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Synchrony Financial

Assuming the 90 days horizon Babcock Wilcox Enterprises is expected to under-perform the Synchrony Financial. In addition to that, Babcock Wilcox is 2.89 times more volatile than Synchrony Financial. It trades about -0.17 of its total potential returns per unit of risk. Synchrony Financial is currently generating about -0.09 per unit of volatility. If you would invest  1,899  in Synchrony Financial on December 28, 2024 and sell it today you would lose (96.00) from holding Synchrony Financial or give up 5.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Babcock Wilcox Enterprises  vs.  Synchrony Financial

Babcock Wilcox Enter

Risk-Adjusted Performance

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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Synchrony Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Synchrony Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Synchrony Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Babcock Wilcox and Synchrony Financial

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

The idea behind Babcock Wilcox Enterprises and Synchrony Financial 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.