Correlation Between SBM Offshore and American Axle

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

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

Diversification Opportunities for SBM Offshore and American Axle

-0.21

Correlation Coefficient

SBM Offshore  American Axle

Very good diversification

The 3 months correlation between SBM and American is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and American Axle Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Axle Manufa and SBM Offshore 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 SBM Offshore NV are associated (or correlated) with American Axle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Axle Manufa has no effect on the direction of SBM Offshore i.e., SBM Offshore and American Axle go up and down completely randomly.

Pair Corralation between SBM Offshore and American Axle

Assuming the 90 days horizon SBM Offshore NV is expected to under-perform the American Axle. But the pink sheet apears to be less risky and, when comparing its historical volatility, SBM Offshore NV is 1.34 times less risky than American Axle. The pink sheet trades about -0.01 of its potential returns per unit of risk. The American Axle Manufacturing is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  613.00  in American Axle Manufacturing on September 17, 2024 and sell it today you would earn a total of  24.00  from holding American Axle Manufacturing or generate 3.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

SBM Offshore NV  vs.  American Axle Manufacturing

SBM Offshore NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM Offshore NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, SBM Offshore is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Axle Manufa

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Axle Manufacturing are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, American Axle is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SBM Offshore and American Axle

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

The idea behind SBM Offshore NV and American Axle Manufacturing 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.