Correlation Between BW Offshore and Emerson Radio

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

Diversification Opportunities for BW Offshore and Emerson Radio

-0.45

Correlation Coefficient

BW Offshore  Emerson Radio

Very good diversification

The 3 months correlation between BWOFY and Emerson is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and Emerson Radio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Radio 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 Emerson Radio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Radio has no effect on the direction of BW Offshore i.e., BW Offshore and Emerson Radio go up and down completely randomly.

Pair Corralation between BW Offshore and Emerson Radio

Assuming the 90 days horizon BW Offshore Limited is expected to generate 0.21 times more return on investment than Emerson Radio. However, BW Offshore Limited is 4.78 times less risky than Emerson Radio. It trades about 0.29 of its potential returns per unit of risk. Emerson Radio is currently generating about 0.01 per unit of risk. If you would invest  538.00  in BW Offshore Limited on September 23, 2024 and sell it today you would earn a total of  17.00  from holding BW Offshore Limited or generate 3.16% return on investment over 90 days.

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

BW Offshore Limited  vs.  Emerson Radio

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 current stock price disturbance, may contribute to short-term losses for the investors.

Emerson Radio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerson Radio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Emerson Radio is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BW Offshore and Emerson Radio

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

The idea behind BW Offshore Limited and Emerson Radio 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.