Correlation Between BW Offshore and Addus HomeCare

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

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

Diversification Opportunities for BW Offshore and Addus HomeCare

-0.26

Correlation Coefficient

BW Offshore  Addus HomeCare

Very good diversification

The 3 months correlation between BWOFY and Addus is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare 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 Limited are associated (or correlated) with Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of BW Offshore i.e., BW Offshore and Addus HomeCare go up and down completely randomly.

Pair Corralation between BW Offshore and Addus HomeCare

Assuming the 90 days horizon BW Offshore is expected to generate 1.45 times less return on investment than Addus HomeCare. But when comparing it to its historical volatility, BW Offshore Limited is 1.15 times less risky than Addus HomeCare. It trades about 0.07 of its potential returns per unit of risk. Addus HomeCare is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8,901  in Addus HomeCare on September 21, 2024 and sell it today you would earn a total of  4,059  from holding Addus HomeCare or generate 45.6% return on investment over 90 days.

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

BW Offshore Limited  vs.  Addus HomeCare

BW Offshore Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Offshore Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, BW Offshore is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Addus HomeCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Addus HomeCare is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BW Offshore and Addus HomeCare

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

The idea behind BW Offshore Limited and Addus HomeCare 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.