Correlation Between Cardinal Health and Babcock Wilcox

Can any of the company-specific risk be diversified away by investing in both Cardinal Health and Babcock Wilcox 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 Cardinal Health and Babcock Wilcox into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cardinal Health and Babcock Wilcox Enterprises, you can compare the effects of market volatilities on Cardinal Health and Babcock Wilcox 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 Cardinal Health with a short position of Babcock Wilcox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cardinal Health and Babcock Wilcox.

Diversification Opportunities for Cardinal Health and Babcock Wilcox

0.24

Correlation Coefficient

Cardinal Health  Babcock Wilcox

Modest diversification

The 3 months correlation between Cardinal and Babcock is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter and Cardinal Health 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 Cardinal Health are associated (or correlated) with Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Cardinal Health i.e., Cardinal Health and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Cardinal Health and Babcock Wilcox

Considering the 90-day investment horizon Cardinal Health is expected to generate 0.41 times more return on investment than Babcock Wilcox. However, Cardinal Health is 2.45 times less risky than Babcock Wilcox. It trades about 0.05 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about -0.04 per unit of risk. If you would invest  12,533  in Cardinal Health on December 5, 2024 and sell it today you would earn a total of  98.00  from holding Cardinal Health or generate 0.78% return on investment over 90 days.

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

Cardinal Health  vs.  Babcock Wilcox Enterprises

Cardinal Health

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Cardinal Health is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Babcock Wilcox Enter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Babcock Wilcox is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cardinal Health and Babcock Wilcox

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

The idea behind Cardinal Health and Babcock Wilcox Enterprises 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.