Correlation Between Babcock Wilcox and Utah Medical

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

Diversification Opportunities for Babcock Wilcox and Utah Medical

0.72

Correlation Coefficient

Babcock Wilcox  Utah Medical

Poor diversification

The 3 months correlation between Babcock and Utah is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Utah Medical Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utah Medical Products 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 Utah Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utah Medical Products has no effect on the direction of Babcock Wilcox i.e., Babcock Wilcox and Utah Medical go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Utah Medical

Given the investment horizon of 90 days Babcock Wilcox Enterprises is expected to generate 2.75 times more return on investment than Utah Medical. However, Babcock Wilcox is 2.75 times more volatile than Utah Medical Products. It trades about -0.02 of its potential returns per unit of risk. Utah Medical Products is currently generating about -0.26 per unit of risk. If you would invest  2,123  in Babcock Wilcox Enterprises on October 9, 2024 and sell it today you would lose (23.00) from holding Babcock Wilcox Enterprises or give up 1.08% 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.  Utah Medical Products

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Babcock Wilcox is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Utah Medical Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utah Medical Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Babcock Wilcox and Utah Medical

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

The idea behind Babcock Wilcox Enterprises and Utah Medical Products 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.