Correlation Between Lindsell Train and SBM Offshore

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

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

Diversification Opportunities for Lindsell Train and SBM Offshore

0.32

Correlation Coefficient

Lindsell Train  SBM Offshore

Weak diversification

The 3 months correlation between Lindsell and SBM is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Lindsell Train Investment and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV and Lindsell Train 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 Lindsell Train Investment 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 NV has no effect on the direction of Lindsell Train i.e., Lindsell Train and SBM Offshore go up and down completely randomly.

Pair Corralation between Lindsell Train and SBM Offshore

Assuming the 90 days trading horizon Lindsell Train is expected to generate 4.65 times less return on investment than SBM Offshore. But when comparing it to its historical volatility, Lindsell Train Investment is 1.78 times less risky than SBM Offshore. It trades about 0.05 of its potential returns per unit of risk. SBM Offshore NV is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,692  in SBM Offshore NV on December 30, 2024 and sell it today you would earn a total of  319.00  from holding SBM Offshore NV or generate 18.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Lindsell Train Investment  vs.  SBM Offshore NV

Lindsell Train Investment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lindsell Train Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Lindsell Train is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SBM Offshore NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, SBM Offshore disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lindsell Train and SBM Offshore

The main advantage of trading using opposite Lindsell Train and SBM Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lindsell Train 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 Lindsell Train Investment and SBM Offshore NV 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.