Correlation Between Babcock Wilcox and CECO Environmental

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

Diversification Opportunities for Babcock Wilcox and CECO Environmental

-0.53

Correlation Coefficient

Babcock Wilcox  CECO Environmental

Excellent diversification

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

Pair Corralation between Babcock Wilcox and CECO Environmental

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to under-perform the CECO Environmental. In addition to that, Babcock Wilcox is 1.75 times more volatile than CECO Environmental Corp. It trades about -0.25 of its total potential returns per unit of risk. CECO Environmental Corp is currently generating about -0.28 per unit of volatility. If you would invest  3,299  in CECO Environmental Corp on September 24, 2024 and sell it today you would lose (424.00) from holding CECO Environmental Corp or give up 12.85% of portfolio value over 90 days.

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

Babcock Wilcox Enterprises  vs.  CECO Environmental Corp

Babcock Wilcox Enter

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Babcock Wilcox may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CECO Environmental Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, CECO Environmental is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Babcock Wilcox and CECO Environmental

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

The idea behind Babcock Wilcox Enterprises and CECO Environmental Corp 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.