Correlation Between Delek Drilling and BW Offshore

Can any of the company-specific risk be diversified away by investing in both Delek Drilling and BW 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 Delek Drilling and BW Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Delek Drilling and BW Offshore Limited, you can compare the effects of market volatilities on Delek Drilling and BW 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 Delek Drilling with a short position of BW Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of Delek Drilling and BW Offshore.

Diversification Opportunities for Delek Drilling and BW Offshore

0.49

Correlation Coefficient

Delek Drilling  BW Offshore

Very weak diversification

The 3 months correlation between Delek and BWOFY is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Delek Drilling and BW Offshore Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Offshore Limited and Delek Drilling 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 Delek Drilling are associated (or correlated) with BW Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Offshore Limited has no effect on the direction of Delek Drilling i.e., Delek Drilling and BW Offshore go up and down completely randomly.

Pair Corralation between Delek Drilling and BW Offshore

Assuming the 90 days horizon Delek Drilling is expected to generate 2.16 times less return on investment than BW Offshore. In addition to that, Delek Drilling is 2.94 times more volatile than BW Offshore Limited. It trades about 0.02 of its total potential returns per unit of risk. BW Offshore Limited is currently generating about 0.11 per unit of volatility. If you would invest  547.00  in BW Offshore Limited on September 15, 2024 and sell it today you would earn a total of  8.00  from holding BW Offshore Limited or generate 1.46% return on investment over 90 days.

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

Delek Drilling   vs.  BW Offshore Limited

Delek Drilling

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Delek Drilling are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Delek Drilling reported solid returns over the last few months and may actually be approaching a breakup point.

BW Offshore Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, BW Offshore showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delek Drilling and BW Offshore

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

The idea behind Delek Drilling and BW Offshore Limited 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.