Correlation Between Reach Subsea and BW Energy

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

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

Diversification Opportunities for Reach Subsea and BW Energy

-0.66

Correlation Coefficient

Reach Subsea  BW Energy

Excellent diversification

The 3 months correlation between Reach and BWE is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Reach Subsea and BW Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Energy and Reach Subsea 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 Reach Subsea are associated (or correlated) with BW Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Energy has no effect on the direction of Reach Subsea i.e., Reach Subsea and BW Energy go up and down completely randomly.

Pair Corralation between Reach Subsea and BW Energy

Assuming the 90 days trading horizon Reach Subsea is expected to generate 1.23 times more return on investment than BW Energy. However, Reach Subsea is 1.23 times more volatile than BW Energy. It trades about 0.15 of its potential returns per unit of risk. BW Energy is currently generating about 0.0 per unit of risk. If you would invest  392.00  in Reach Subsea on September 4, 2024 and sell it today you would earn a total of  528.00  from holding Reach Subsea or generate 134.69% return on investment over 90 days.

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

Reach Subsea  vs.  BW Energy

Reach Subsea

Risk-Adjusted Performance

12 of 100

Good

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

BW Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BW Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Reach Subsea and BW Energy

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

The idea behind Reach Subsea and BW Energy 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.