Correlation Between Global Ship and Babcock Wilcox

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

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

Diversification Opportunities for Global Ship and Babcock Wilcox

0.47

Correlation Coefficient

Global Ship  Babcock Wilcox

Very weak diversification

The 3 months correlation between Global and Babcock is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Global Ship Lease 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 Global Ship 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 Global Ship Lease 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 Global Ship i.e., Global Ship and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Global Ship and Babcock Wilcox

Assuming the 90 days trading horizon Global Ship Lease is expected to under-perform the Babcock Wilcox. But the preferred stock apears to be less risky and, when comparing its historical volatility, Global Ship Lease is 4.09 times less risky than Babcock Wilcox. The preferred stock trades about -0.01 of its potential returns per unit of risk. The Babcock Wilcox Enterprises is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,233  in Babcock Wilcox Enterprises on September 1, 2024 and sell it today you would earn a total of  177.00  from holding Babcock Wilcox Enterprises or generate 14.36% return on investment over 90 days.

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

Global Ship Lease  vs.  Babcock Wilcox Enterprises

Global Ship Lease

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Ship Lease are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Global Ship is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Babcock Wilcox Enter

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 Global Ship and Babcock Wilcox

The main advantage of trading using opposite Global Ship and Babcock Wilcox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Ship 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 Global Ship Lease 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.