Correlation Between BW Offshore and Edda Wind

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

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

Diversification Opportunities for BW Offshore and Edda Wind

0.2

Correlation Coefficient

BW Offshore  Edda Wind

Modest diversification

The 3 months correlation between BWO and Edda is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and Edda Wind ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edda Wind ASA 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 Edda Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edda Wind ASA has no effect on the direction of BW Offshore i.e., BW Offshore and Edda Wind go up and down completely randomly.

Pair Corralation between BW Offshore and Edda Wind

Assuming the 90 days trading horizon BW Offshore is expected to generate 0.86 times more return on investment than Edda Wind. However, BW Offshore is 1.16 times less risky than Edda Wind. It trades about 0.04 of its potential returns per unit of risk. Edda Wind ASA is currently generating about -0.07 per unit of risk. If you would invest  2,840  in BW Offshore on December 29, 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	98.44%
Values	Daily Returns

BW Offshore  vs.  Edda Wind ASA

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.

Edda Wind ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Edda Wind ASA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with BW Offshore and Edda Wind

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

The idea behind BW Offshore and Edda Wind ASA 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.