Correlation Between Babcock Wilcox and Franklin Electric

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

Diversification Opportunities for Babcock Wilcox and Franklin Electric

0.05

Correlation Coefficient

Babcock Wilcox  Franklin Electric

Significant diversification

The 3 months correlation between Babcock and Franklin is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Franklin Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Electric 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 Franklin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Electric has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Franklin Electric go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Franklin Electric

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to generate 3.69 times more return on investment than Franklin Electric. However, Babcock Wilcox is 3.69 times more volatile than Franklin Electric Co. It trades about 0.09 of its potential returns per unit of risk. Franklin Electric Co is currently generating about 0.01 per unit of risk. If you would invest  136.00  in Babcock Wilcox Enterprises on September 19, 2024 and sell it today you would earn a total of  38.00  from holding Babcock Wilcox Enterprises or generate 27.94% return on investment over 90 days.

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

Babcock Wilcox Enterprises  vs.  Franklin Electric Co

Babcock Wilcox Enter

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Babcock Wilcox showed solid returns over the last few months and may actually be approaching a breakup point.

Franklin Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Franklin Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Babcock Wilcox and Franklin Electric

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

The idea behind Babcock Wilcox Enterprises and Franklin Electric Co 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.