Correlation Between SBM OFFSHORE and Leggett Platt

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

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

Diversification Opportunities for SBM OFFSHORE and Leggett Platt

-0.07

Correlation Coefficient

SBM OFFSHORE  Leggett Platt

Good diversification

The 3 months correlation between SBM and Leggett is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding SBM OFFSHORE and Leggett Platt Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leggett Platt 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 Leggett Platt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leggett Platt has no effect on the direction of SBM OFFSHORE i.e., SBM OFFSHORE and Leggett Platt go up and down completely randomly.

Pair Corralation between SBM OFFSHORE and Leggett Platt

Assuming the 90 days trading horizon SBM OFFSHORE is expected to generate 0.58 times more return on investment than Leggett Platt. However, SBM OFFSHORE is 1.72 times less risky than Leggett Platt. It trades about -0.04 of its potential returns per unit of risk. Leggett Platt Incorporated is currently generating about -0.67 per unit of risk. If you would invest  1,689  in SBM OFFSHORE on September 28, 2024 and sell it today you would lose (17.00) from holding SBM OFFSHORE or give up 1.01% 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.  Leggett Platt Incorporated

SBM OFFSHORE

Risk-Adjusted Performance

2 of 100

Weak

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Leggett Platt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leggett Platt Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SBM OFFSHORE and Leggett Platt

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

The idea behind SBM OFFSHORE and Leggett Platt Incorporated 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.