Correlation Between BW Offshore and PacifiCorp

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

Diversification Opportunities for BW Offshore and PacifiCorp

0.36

Correlation Coefficient

BW Offshore  PacifiCorp

Weak diversification

The 3 months correlation between BWOFY and PacifiCorp is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp 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 PacifiCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacifiCorp has no effect on the direction of BW Offshore i.e., BW Offshore and PacifiCorp go up and down completely randomly.

Pair Corralation between BW Offshore and PacifiCorp

Assuming the 90 days horizon BW Offshore is expected to generate 4.42 times less return on investment than PacifiCorp. But when comparing it to its historical volatility, BW Offshore Limited is 2.76 times less risky than PacifiCorp. It trades about 0.11 of its potential returns per unit of risk. PacifiCorp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  12,022  in PacifiCorp on October 12, 2024 and sell it today you would earn a total of  5,978  from holding PacifiCorp or generate 49.73% 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 Limited  vs.  PacifiCorp

BW Offshore Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, BW Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

PacifiCorp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PacifiCorp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, PacifiCorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BW Offshore and PacifiCorp

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

The idea behind BW Offshore Limited and PacifiCorp 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.