Correlation Between SBM OFFSHORE and Evolution

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

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

Diversification Opportunities for SBM OFFSHORE and Evolution

0.24

Correlation Coefficient

SBM OFFSHORE  Evolution

Modest diversification

The 3 months correlation between SBM and Evolution is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding SBM OFFSHORE and Evolution AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolution AB 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 Evolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolution AB has no effect on the direction of SBM OFFSHORE i.e., SBM OFFSHORE and Evolution go up and down completely randomly.

Pair Corralation between SBM OFFSHORE and Evolution

Assuming the 90 days trading horizon SBM OFFSHORE is expected to generate 0.6 times more return on investment than Evolution. However, SBM OFFSHORE is 1.66 times less risky than Evolution. It trades about 0.03 of its potential returns per unit of risk. Evolution AB is currently generating about -0.06 per unit of risk. If you would invest  1,698  in SBM OFFSHORE on October 11, 2024 and sell it today you would earn a total of  34.00  from holding SBM OFFSHORE or generate 2.0% return on investment over 90 days.

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

SBM OFFSHORE  vs.  Evolution AB

SBM OFFSHORE

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SBM OFFSHORE are ranked lower than 2 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Evolution AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolution AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with SBM OFFSHORE and Evolution

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

The idea behind SBM OFFSHORE and Evolution AB 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.

Check out your portfolio center.

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.