Correlation Between Hillenbrand and Babcock Wilcox

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

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

Diversification Opportunities for Hillenbrand and Babcock Wilcox

-0.18

Correlation Coefficient

Hillenbrand  Babcock Wilcox

Good diversification

The 3 months correlation between Hillenbrand and Babcock is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Hillenbrand 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 Hillenbrand 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 Hillenbrand 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 Hillenbrand i.e., Hillenbrand and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Hillenbrand and Babcock Wilcox

Allowing for the 90-day total investment horizon Hillenbrand is expected to generate 0.55 times more return on investment than Babcock Wilcox. However, Hillenbrand is 1.83 times less risky than Babcock Wilcox. It trades about -0.08 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about -0.08 per unit of risk. If you would invest  3,201  in Hillenbrand on September 18, 2024 and sell it today you would lose (120.00) from holding Hillenbrand or give up 3.75% of portfolio value over 90 days.

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

Hillenbrand  vs.  Babcock Wilcox Enterprises

Hillenbrand

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hillenbrand are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Hillenbrand demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Babcock Wilcox Enter

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Babcock Wilcox showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hillenbrand and Babcock Wilcox

The main advantage of trading using opposite Hillenbrand and Babcock Wilcox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hillenbrand 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 Hillenbrand 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.