Correlation Between BW Energy and BW Offshore

Can any of the company-specific risk be diversified away by investing in both BW Energy and BW Offshore 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 BW Energy and BW Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BW Energy and BW Offshore, you can compare the effects of market volatilities on BW Energy and BW Offshore 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 BW Energy with a short position of BW Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Energy and BW Offshore.

Diversification Opportunities for BW Energy and BW Offshore

0.37

Correlation Coefficient

BW Energy  BW Offshore

Weak diversification

The 3 months correlation between BWE and BWO is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding BW Energy and BW Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore and BW Energy 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 BW Energy are associated (or correlated) with BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore has no effect on the direction of BW Energy i.e., BW Energy and BW Offshore go up and down completely randomly.

Pair Corralation between BW Energy and BW Offshore

Assuming the 90 days trading horizon BW Energy is expected to generate 1.23 times more return on investment than BW Offshore. However, BW Energy is 1.23 times more volatile than BW Offshore. It trades about 0.21 of its potential returns per unit of risk. BW Offshore is currently generating about 0.05 per unit of risk. If you would invest  2,355  in BW Energy on December 28, 2024 and sell it today you would earn a total of  775.00  from holding BW Energy or generate 32.91% return on investment over 90 days.

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

BW Energy  vs.  BW Offshore

BW Energy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BW Energy are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, BW Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

BW Offshore

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, BW Offshore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with BW Energy and BW Offshore

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

The idea behind BW Energy and BW Offshore 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.

Check out your portfolio center.

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 Anywhere module to track or share privately all of your investments from the convenience of any device.