Correlation Between Babcock Wilcox and MSA Safety

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

Diversification Opportunities for Babcock Wilcox and MSA Safety

0.77

Correlation Coefficient

Babcock Wilcox  MSA Safety

Poor diversification

The 3 months correlation between Babcock and MSA is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and MSA Safety in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSA Safety 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 MSA Safety. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSA Safety has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and MSA Safety go up and down completely randomly.

Pair Corralation between Babcock Wilcox and MSA Safety

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to under-perform the MSA Safety. In addition to that, Babcock Wilcox is 3.98 times more volatile than MSA Safety. It trades about -0.26 of its total potential returns per unit of risk. MSA Safety is currently generating about -0.12 per unit of volatility. If you would invest  16,665  in MSA Safety on December 27, 2024 and sell it today you would lose (1,377) from holding MSA Safety or give up 8.26% of portfolio value over 90 days.

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

Babcock Wilcox Enterprises  vs.  MSA Safety

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. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

MSA Safety

Risk-Adjusted Performance

Very Weak

Over the last 90 days MSA Safety has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Babcock Wilcox and MSA Safety

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

The idea behind Babcock Wilcox Enterprises and MSA Safety 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.