Correlation Between Gulf Island and Babcock Wilcox

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

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

Diversification Opportunities for Gulf Island and Babcock Wilcox

-0.31

Correlation Coefficient

Gulf Island  Babcock Wilcox

Very good diversification

The 3 months correlation between Gulf and Babcock is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Island Fabrication 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 Gulf Island 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 Gulf Island Fabrication 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 Gulf Island i.e., Gulf Island and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Gulf Island and Babcock Wilcox

Given the investment horizon of 90 days Gulf Island Fabrication is expected to generate 2.43 times more return on investment than Babcock Wilcox. However, Gulf Island is 2.43 times more volatile than Babcock Wilcox Enterprises,. It trades about 0.09 of its potential returns per unit of risk. Babcock Wilcox Enterprises, is currently generating about -0.34 per unit of risk. If you would invest  696.00  in Gulf Island Fabrication on October 9, 2024 and sell it today you would earn a total of  23.00  from holding Gulf Island Fabrication or generate 3.3% return on investment over 90 days.

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

Gulf Island Fabrication  vs.  Babcock Wilcox Enterprises,

Gulf Island Fabrication

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Island Fabrication are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Gulf Island demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gulf Island and Babcock Wilcox

The main advantage of trading using opposite Gulf Island and Babcock Wilcox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gulf Island 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 Gulf Island Fabrication 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.