Correlation Between SBM Offshore and Avis Budget

Can any of the company-specific risk be diversified away by investing in both SBM Offshore and Avis Budget 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 Avis Budget 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 Avis Budget Group, you can compare the effects of market volatilities on SBM Offshore and Avis Budget 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 Avis Budget. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and Avis Budget.

Diversification Opportunities for SBM Offshore and Avis Budget

0.21

Correlation Coefficient

SBM Offshore  Avis Budget

Modest diversification

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

Pair Corralation between SBM Offshore and Avis Budget

Assuming the 90 days horizon SBM Offshore NV is expected to generate 0.63 times more return on investment than Avis Budget. However, SBM Offshore NV is 1.59 times less risky than Avis Budget. It trades about 0.08 of its potential returns per unit of risk. Avis Budget Group is currently generating about -0.06 per unit of risk. If you would invest  1,211  in SBM Offshore NV on September 21, 2024 and sell it today you would earn a total of  489.00  from holding SBM Offshore NV or generate 40.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	76.21%
Values	Daily Returns

SBM Offshore NV  vs.  Avis Budget Group

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 recent stock price disturbance, may contribute to short-term losses for the investors.

Avis Budget Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avis Budget Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Avis Budget is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with SBM Offshore and Avis Budget

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

The idea behind SBM Offshore NV and Avis Budget Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.