Correlation Between KINGBOARD CHEMICAL and SBM OFFSHORE

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

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

Diversification Opportunities for KINGBOARD CHEMICAL and SBM OFFSHORE

0.86

Correlation Coefficient

KINGBOARD CHEMICAL  SBM OFFSHORE

Very poor diversification

The 3 months correlation between KINGBOARD and SBM is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding KINGBOARD CHEMICAL and SBM OFFSHORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM OFFSHORE and KINGBOARD CHEMICAL 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 KINGBOARD CHEMICAL are associated (or correlated) with SBM OFFSHORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM OFFSHORE has no effect on the direction of KINGBOARD CHEMICAL i.e., KINGBOARD CHEMICAL and SBM OFFSHORE go up and down completely randomly.

Pair Corralation between KINGBOARD CHEMICAL and SBM OFFSHORE

Assuming the 90 days trading horizon KINGBOARD CHEMICAL is expected to generate 1.31 times more return on investment than SBM OFFSHORE. However, KINGBOARD CHEMICAL is 1.31 times more volatile than SBM OFFSHORE. It trades about 0.16 of its potential returns per unit of risk. SBM OFFSHORE is currently generating about 0.16 per unit of risk. If you would invest  224.00  in KINGBOARD CHEMICAL on December 21, 2024 and sell it today you would earn a total of  58.00  from holding KINGBOARD CHEMICAL or generate 25.89% return on investment over 90 days.

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

KINGBOARD CHEMICAL  vs.  SBM OFFSHORE

KINGBOARD CHEMICAL

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KINGBOARD CHEMICAL are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, KINGBOARD CHEMICAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

SBM OFFSHORE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SBM OFFSHORE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, SBM OFFSHORE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KINGBOARD CHEMICAL and SBM OFFSHORE

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

The idea behind KINGBOARD CHEMICAL and SBM OFFSHORE 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.