Correlation Between Kadant and Babcock Wilcox

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

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

Diversification Opportunities for Kadant and Babcock Wilcox

-0.4

Correlation Coefficient

Kadant  Babcock Wilcox

Very good diversification

The 3 months correlation between Kadant and Babcock is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Kadant Inc 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 Kadant 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 Kadant Inc 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 Kadant i.e., Kadant and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Kadant and Babcock Wilcox

Considering the 90-day investment horizon Kadant Inc is expected to generate 1.07 times more return on investment than Babcock Wilcox. However, Kadant is 1.07 times more volatile than Babcock Wilcox Enterprises. It trades about 0.24 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about 0.03 per unit of risk. If you would invest  30,308  in Kadant Inc on September 3, 2024 and sell it today you would earn a total of  11,024  from holding Kadant Inc or generate 36.37% return on investment over 90 days.

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

Kadant Inc  vs.  Babcock Wilcox Enterprises

Kadant Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kadant Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Kadant demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 Kadant and Babcock Wilcox

The main advantage of trading using opposite Kadant and Babcock Wilcox positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kadant 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 Kadant Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.