Correlation Between Palfinger and SBM Offshore

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

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

Diversification Opportunities for Palfinger and SBM Offshore

0.8

Correlation Coefficient

Palfinger  SBM Offshore

Very poor diversification

The 3 months correlation between Palfinger and SBM is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Palfinger AG 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 Palfinger 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 Palfinger AG 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 Palfinger i.e., Palfinger and SBM Offshore go up and down completely randomly.

Pair Corralation between Palfinger and SBM Offshore

Assuming the 90 days trading horizon Palfinger AG is expected to generate 1.1 times more return on investment than SBM Offshore. However, Palfinger is 1.1 times more volatile than SBM Offshore NV. It trades about 0.27 of its potential returns per unit of risk. SBM Offshore NV is currently generating about 0.15 per unit of risk. If you would invest  1,968  in Palfinger AG on December 30, 2024 and sell it today you would earn a total of  872.00  from holding Palfinger AG or generate 44.31% return on investment over 90 days.

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

Palfinger AG  vs.  SBM Offshore NV

Palfinger AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Palfinger AG are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent essential indicators, Palfinger demonstrated solid returns over the last few months and may actually be approaching a breakup point.

SBM Offshore NV

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent forward indicators, SBM Offshore demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Palfinger and SBM Offshore

The main advantage of trading using opposite Palfinger and SBM Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Palfinger 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 Palfinger AG 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.