Correlation Between BW Offshore and Dolphin Drilling

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

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

Diversification Opportunities for BW Offshore and Dolphin Drilling

0.29

Correlation Coefficient

BW Offshore  Dolphin Drilling

Modest diversification

The 3 months correlation between BWO and Dolphin is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Dolphin Drilling AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dolphin Drilling and BW Offshore 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 Offshore are associated (or correlated) with Dolphin Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dolphin Drilling has no effect on the direction of BW Offshore i.e., BW Offshore and Dolphin Drilling go up and down completely randomly.

Pair Corralation between BW Offshore and Dolphin Drilling

Assuming the 90 days trading horizon BW Offshore is expected to generate 0.25 times more return on investment than Dolphin Drilling. However, BW Offshore is 4.07 times less risky than Dolphin Drilling. It trades about 0.04 of its potential returns per unit of risk. Dolphin Drilling AS is currently generating about -0.07 per unit of risk. If you would invest  2,840  in BW Offshore on December 30, 2024 and sell it today you would earn a total of  110.00  from holding BW Offshore or generate 3.87% return on investment over 90 days.

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

BW Offshore  vs.  Dolphin Drilling AS

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.

Dolphin Drilling

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dolphin Drilling AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with BW Offshore and Dolphin Drilling

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

The idea behind BW Offshore and Dolphin Drilling AS 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.