Correlation Between Charter Communications and SBM OFFSHORE

Can any of the company-specific risk be diversified away by investing in both Charter Communications and SBM OFFSHORE 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 Charter Communications and SBM OFFSHORE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Charter Communications and SBM OFFSHORE, you can compare the effects of market volatilities on Charter Communications and SBM OFFSHORE 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 Charter Communications with a short position of SBM OFFSHORE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charter Communications and SBM OFFSHORE.

Diversification Opportunities for Charter Communications and SBM OFFSHORE

0.21

Correlation Coefficient

Charter Communications  SBM OFFSHORE

Modest diversification

The 3 months correlation between Charter and SBM is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and SBM OFFSHORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM OFFSHORE and Charter Communications 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 Charter Communications are associated (or correlated) with SBM OFFSHORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM OFFSHORE has no effect on the direction of Charter Communications i.e., Charter Communications and SBM OFFSHORE go up and down completely randomly.

Pair Corralation between Charter Communications and SBM OFFSHORE

Assuming the 90 days trading horizon Charter Communications is expected to under-perform the SBM OFFSHORE. But the stock apears to be less risky and, when comparing its historical volatility, Charter Communications is 1.23 times less risky than SBM OFFSHORE. The stock trades about -0.03 of its potential returns per unit of risk. The SBM OFFSHORE is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,672  in SBM OFFSHORE on December 22, 2024 and sell it today you would earn a total of  340.00  from holding SBM OFFSHORE or generate 20.33% return on investment over 90 days.

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

Charter Communications  vs.  SBM OFFSHORE

Charter Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Charter Communications is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SBM OFFSHORE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SBM OFFSHORE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, SBM OFFSHORE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charter Communications and SBM OFFSHORE

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

The idea behind Charter Communications and SBM OFFSHORE 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.