Correlation Between Babcock Wilcox and SIMPPLE

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

Diversification Opportunities for Babcock Wilcox and SIMPPLE

0.13

Correlation Coefficient

Babcock Wilcox  SIMPPLE

Average diversification

The 3 months correlation between Babcock and SIMPPLE is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and SIMPPLE LTD Ordinary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMPPLE LTD Ordinary 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 SIMPPLE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMPPLE LTD Ordinary has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and SIMPPLE go up and down completely randomly.

Pair Corralation between Babcock Wilcox and SIMPPLE

Allowing for the 90-day total investment horizon Babcock Wilcox Enterprises is expected to generate 0.53 times more return on investment than SIMPPLE. However, Babcock Wilcox Enterprises is 1.9 times less risky than SIMPPLE. It trades about -0.04 of its potential returns per unit of risk. SIMPPLE LTD Ordinary is currently generating about -0.12 per unit of risk. If you would invest  226.00  in Babcock Wilcox Enterprises on September 6, 2024 and sell it today you would lose (29.00) from holding Babcock Wilcox Enterprises or give up 12.83% of portfolio value over 90 days.

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

Babcock Wilcox Enterprises  vs.  SIMPPLE LTD Ordinary

Babcock Wilcox Enter

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 14 (%) 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.

SIMPPLE LTD Ordinary

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SIMPPLE LTD Ordinary are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, SIMPPLE disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Babcock Wilcox and SIMPPLE

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

The idea behind Babcock Wilcox Enterprises and SIMPPLE LTD Ordinary 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.