Correlation Between BW Offshore and Summit Materials

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

Diversification Opportunities for BW Offshore and Summit Materials

0.8

Correlation Coefficient

BW Offshore  Summit Materials

Very poor diversification

The 3 months correlation between BWOFY and Summit is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore Limited and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of BW Offshore i.e., BW Offshore and Summit Materials go up and down completely randomly.

Pair Corralation between BW Offshore and Summit Materials

Assuming the 90 days horizon BW Offshore is expected to generate 2.01 times less return on investment than Summit Materials. But when comparing it to its historical volatility, BW Offshore Limited is 1.45 times less risky than Summit Materials. It trades about 0.04 of its potential returns per unit of risk. Summit Materials is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,202  in Summit Materials on October 4, 2024 and sell it today you would earn a total of  1,858  from holding Summit Materials or generate 58.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	82.02%
Values	Daily Returns

BW Offshore Limited  vs.  Summit Materials

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 conflicting technical and fundamental indicators, BW Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Summit Materials

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BW Offshore and Summit Materials

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

The idea behind BW Offshore Limited and Summit Materials 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.