Correlation Between Babcock Wilcox and Hillenbrand

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

Diversification Opportunities for Babcock Wilcox and Hillenbrand

-0.18

Correlation Coefficient

Babcock Wilcox  Hillenbrand

Good diversification

The 3 months correlation between Babcock and Hillenbrand is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Hillenbrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hillenbrand 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 Hillenbrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hillenbrand has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Hillenbrand go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Hillenbrand

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to under-perform the Hillenbrand. In addition to that, Babcock Wilcox is 1.83 times more volatile than Hillenbrand. It trades about -0.08 of its total potential returns per unit of risk. Hillenbrand is currently generating about -0.08 per unit of volatility. If you would invest  3,201  in Hillenbrand on September 19, 2024 and sell it today you would lose (120.00) from holding Hillenbrand or give up 3.75% of portfolio value over 90 days.

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

Babcock Wilcox Enterprises  vs.  Hillenbrand

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.

Hillenbrand

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hillenbrand are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Hillenbrand may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Babcock Wilcox and Hillenbrand

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

The idea behind Babcock Wilcox Enterprises and Hillenbrand 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.