Correlation Between SBM OFFSHORE and Brother Industries

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

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

Diversification Opportunities for SBM OFFSHORE and Brother Industries

-0.3

Correlation Coefficient

SBM OFFSHORE  Brother Industries

Very good diversification

The 3 months correlation between SBM and Brother is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding SBM OFFSHORE and Brother Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brother Industries and SBM OFFSHORE 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 SBM OFFSHORE are associated (or correlated) with Brother Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brother Industries has no effect on the direction of SBM OFFSHORE i.e., SBM OFFSHORE and Brother Industries go up and down completely randomly.

Pair Corralation between SBM OFFSHORE and Brother Industries

Assuming the 90 days trading horizon SBM OFFSHORE is expected to under-perform the Brother Industries. But the stock apears to be less risky and, when comparing its historical volatility, SBM OFFSHORE is 1.08 times less risky than Brother Industries. The stock trades about -0.23 of its potential returns per unit of risk. The Brother Industries is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,690  in Brother Industries on September 24, 2024 and sell it today you would lose (40.00) from holding Brother Industries or give up 2.37% of portfolio value over 90 days.

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

SBM OFFSHORE  vs.  Brother Industries

SBM OFFSHORE

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SBM OFFSHORE are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, SBM OFFSHORE is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Brother Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brother Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Brother Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SBM OFFSHORE and Brother Industries

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

The idea behind SBM OFFSHORE and Brother Industries 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.