Correlation Between BW Offshore and Transocean

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

Diversification Opportunities for BW Offshore and Transocean

0.17

Correlation Coefficient

BW Offshore  Transocean

Average diversification

The 3 months correlation between BWOFY and Transocean is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of BW Offshore i.e., BW Offshore and Transocean go up and down completely randomly.

Pair Corralation between BW Offshore and Transocean

Assuming the 90 days horizon BW Offshore Limited is expected to generate 0.44 times more return on investment than Transocean. However, BW Offshore Limited is 2.28 times less risky than Transocean. It trades about -0.04 of its potential returns per unit of risk. Transocean is currently generating about -0.03 per unit of risk. If you would invest  524.00  in BW Offshore Limited on December 29, 2024 and sell it today you would lose (23.00) from holding BW Offshore Limited or give up 4.39% of portfolio value over 90 days.

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

BW Offshore Limited  vs.  Transocean

BW Offshore Limited

Risk-Adjusted Performance

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

Transocean

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BW Offshore and Transocean

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

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